IACC CONCLAVE:
Vision 2020 - Increasing US India
Bilateral Trade to $500 Billion
29th January, 2016
Make in India
ContentsSession 1 : Make in India 03
Session 2 : Health, Chemicals & Life Sciences 14
Session 3 : Defence & Aerospace 77
Session 4 : E-Commerce & Retail 83
Session 5 : Smart Cities 102
©2016 Deloitte Touche Tohmatsu India LLP 2
IACC Conclave: Vision 2020
Increasing US India Bilateral Trade to $500 Billion
Make in India
©2016 Deloitte Touche Tohmatsu India LLP 3
• Context
− Make in India – need of the hour
− Make in India has the potential to transform the manufacturing
landscape of India
• The four pillars of ‘Make in India’
− New Processes
− New Mindset
− New Infrastructure
− New Sectors
• Further steps to be taken to enhance the outcomes of ‘Make in India’
Agenda
©2016 Deloitte Touche Tohmatsu India LLP 4
‘Make in India’- Can India become a global manufacturing
hub?
• Manufacturing sector is an important component of an emerging economy that fuels growth
and productivity, generates employment and acts as a catalyst for inclusive growth.
• While there has been a lot of interest in manufacturing in India, given the promise of a large
market, the manufacturing sector is under-represented in the economy.
• Though India the potential to grow with an abundance of man-power and resources, the
growth so far has been less than impressive.
• India’s share of global manufacturing stood at a little over 2% (in US $ terms) and is ranked
11th among the Top 15 manufacturing countries in 2013, while China which leads the ranking
by positioning itself as the workshop of the world and accounted for 23.2% of global
manufacturing.
• The Make in India strategy of the central government was envisaged at a point of time when
demand for manufacturing products and the investments in the manufacturing sector were
weak. ‘Make in India’ comes with a road map that has the potential to transform the
manufacturing landscape of India. But it is equally true that getting off the ground from where
the manufacturing economy was at in 2014, when Make in India was launched, would require
correcting some structural and systemic flaws. This can potentially be a time consuming
process.
©2016 Deloitte Touche Tohmatsu India LLP 5
• Context
− Make in India – need of the hour
− Make in India has the potential to transform the manufacturing landscape
of India
• The four pillars of ‘Make in India’
− New Processes
− New Mindset
− New Infrastructure
− New Sectors
• Further steps to be taken to enhance the outcomes of ‘Make in India’
Agenda
©2016 Deloitte Touche Tohmatsu India LLP 6
‘Make in India’- Can India become a global manufacturing
hub?
• Make in India
− The ‘Make in India’ Strategy aims to facilitate investment, foster innovation, enhance skill
development and build a sustainable eco-system for the manufacturing infrastructure in the country.
The objective of this programme is to ensure that the manufacturing sector, which contributes
around 17% of the India’s Gross Domestic Products (GDP), increases to 25% by 2022.
• ‘Make in India’ stands on four pillars:
− New processes are expected to help in the area of
factor costs and conditions, which in turn, can be
helpful for building scale. In addition, the
new infrastructure pillar would not only reduce
costs but the process of building would also
generate demand. In addition, the new sectors
would generate demand. The new mindset
promotes the notion that there will be a new and
improved interface with the government for the
enterprises. The new mindset would focus on
start-ups, which are the drivers of employment
generation.
Make in India
New infrastructure
• Industrial corridors
• Industrial clusters
• Smart cities
New processes
• Ease of doing
business
New sectors New mindset
©2016 Deloitte Touche Tohmatsu India LLP 7
‘Make in India’- Can India become a global manufacturing
hub?
• New Processes
− Ease of doing business in India:
− Digital India – the road to Smart Governance
− Online application for environment and forest clearances
− Reduction in number of documents for foreign trade from ten to three
− A large number of components of ‘Defence Products’ list has been excluded from the purview of
Industrial Licencing
− Set up of the ‘e-Nivesh’ web portal, through which investors can now apply for some 80 government
permits online
− Set up of the ‘e-biz’ portal - integrating 11 central government services to facilitate faster clearances
for businesses
− Government has eased FDI norms in 15 major sectors, resulting in the ease of investment caps and
controls in high- value industrial sectors – defense, construction and railways. These sectors are now
open for global participation.
©2016 Deloitte Touche Tohmatsu India LLP 8
‘Make in India’- Can India become a global manufacturing
hub?
• New Mindset
− ‘Start up India, Stand Up India’ to promote bank financing for start-ups and offer incentives to boost
entrepreneurship and job creation.
− Niti Aayog is focusing on technology and creating a roadmap to implement the ‘Make in India’
programme in a manner that will give India an edge over its competing neighbours and prove
sustainable over the long term. The focus is to shift from traditional methods to scientific methods that
will help to substantially reduce the turnaround time, help India scale up its manufacturing and finally
pitch itself in the global market as a "green manufacturing" country
− National Skill Development Mission - to make India a hub of skilled manpower. The focus will also be
on ITIs (Industrial Training Institutes) to acquire global recognition for producing quality skilled
manpower.
©2016 Deloitte Touche Tohmatsu India LLP 9
‘Make in India’- Can India become a global manufacturing
hub?
• New Infrastructure/New Sectors
− Industrial corridor:
− New ‘National Industrial Corridor Development Authority (NICDA)’ has been created to coordinate,
integrate, monitor and supervise development of all industrial corridors (ICs).
− Five industrial corridor projects have been identified, planned and launched to provide an impetus to
industrialisation and planned urbanisation. In each of these corridors, manufacturing will be a key
economic driver. Along these corridors, the development of 100 Smart Cities has also been
envisaged. These cities are being developed to integrate the new workforce that will power
manufacturing along the industrial corridors and to decongest India’s urban housing scenario.
− India and Japan have signed an INR 98,000-crore project to lay India's first bullet train network.
− Revival of stalled projects: Out of 231 major projects in sectors such as coal, civil aviation, mines,
petroleum, power and roads, issue resolution has been initiated at different levels for the need of
various clearances, land and other issues; 217 projects have been resolved so far.
©2016 Deloitte Touche Tohmatsu India LLP 10
• Context
− Make in India – need of the hour
− Make in India has the potential to transform the manufacturing landscape
of India
• The four pillars of ‘Make in India’
− New Processes
− New Mindset
− New Infrastructure
− New Sectors
• Further steps to be taken to enhance the outcomes of ‘Make in India’
Agenda
©2016 Deloitte Touche Tohmatsu India LLP 11
‘Make in India’- Can India become a global manufacturing
hub?
• Further steps to be taken to enhance the outcomes of ‘Make in India’
• Following are the aspects to be considered to enhance Make in India strategy. Many of these
have been envisaged and are under various stages of implementation.
− GST implementation - It would result in abolition of multiple taxes and make manufacturing
efficient.
− Strategy for demand generation – The Manufacturing sector suffers from low utilization which
also impacts further investments taking place, therefore, strategies for demand generation by
promoting investments in infrastructure, and creating an environment for infrastructure are
critical. In this context, launching an improved “PPP Model” for infrastructure investments
would be critical.
− Advanced manufacturing technologies – The government should focus on advanced
manufacturing in addition to promoting an ecosystem for conventional manufacturing to
flourish.
©2016 Deloitte Touche Tohmatsu India LLP 12
‘Make in India’- Can India become a global manufacturing
hub?
• Further steps to be taken to enhance the outcomes of ‘Make in India’ (continue..)
• Other areas that require the urgent attention of the government:
− Ease and cost of land acquisition
− Efficiency of the legal processes as they relate to contract enforcement and commercial
disputes
− Stability in the regulatory environment
− Creating capacity for skill development and other social infrastructure
− Flexibility in labour laws
− Enhancement of intellectual property regime
− Greater coordination with state government where many of these aspects gets implemented
India has the depth of market, consuming power and the human resources to be successful in
manufacturing. For this promise to be realized it is vitally important that the Make in India strategy
succeeds.
©2016 Deloitte Touche Tohmatsu India LLP 13
IACC Conclave: Vision 2020
Increasing US India Bilateral Trade to $500 Billion
Sector Focus: Health, Chemicals & Life Sciences
©2016 Deloitte Touche Tohmatsu India LLP 14
Healthcare
©2016 Deloitte Touche Tohmatsu India LLP 15
Indian healthcare market is expected to grow to USD145B
by 2018
6592
145
2010 2014 2018E
55.4%30.4%
5.4%8.7%
Delivery &
diagnostics
Medical Devices
Others (insurance, technology etc.)
Pharma, biotech,
CROs
(including exports)
($ 5 B)
($ 28 B) ($ 51 B)
($ 8 B)
Indian healthcare market (USD B)
India healthcare sector split, 2014
Key growth drivers
1
2
3
4
5
Rising awareness and demand for healthcare
services across the continuum
Increasing urbanization – Urbanization rate will go
up to 40% (583M) in 2030 from 31% (372M) in 2010
Rising prevalence of lifestyle diseases – share in
total disease burden to increase to 76% by 2030
compared to 63% in 2006
Increasing disposable income – share of
population earning > $12,000 p.a. to increase from
2% in 2013 to 8% in 2026
Increasing medical tourism – market expected to
double from the current $3B by 2018
Source: Global burden of diseases, WHO; Census 2011; BMI report,, The World Bank, CII, EIU, Deloitte research and analysis, PHD Chamber of Commerce
©2016 Deloitte Touche Tohmatsu India LLP 16
Hospital segment will drive growth with private sector
investmentsPrivate players constitute more than two-third of the total hospital beds; private hospital
sector expected to continue growing at a double-digit rate
Source: Hospital Market in India – 2014, Netscribes; CII – India Healthcare; NatHealth: ‘Enabling access to long-term finance for healthcare in India’, October 2013; Deloitte research and
analysis
3246
66
98
2012 2014 2016 2018
Indian hospital market expected to almost double in the next 4 years ($ B)
18%-20%
0.6Mn(37%)
0.9Mn(25%)
1.0Mn(63%)
2.6Mn(75%)
2002 2010 2022E
Total number of hospital beds doubled between 2002 and 2010
Public Private
0.8Mn
1.6Mn
3.4Mn
0.4Mn (49%)
0.4Mn (51%)
Private players added more than 600,000 hospital beds between 2002 and 2010, constituting
~70% of total hospital beds added during the time period
2X
~2X
©2016 Deloitte Touche Tohmatsu India LLP 17
India’s private hospital sector – key segments and
presencePrivate hospital market fragmented – multiplicity of formats and players – only a few
corporate hospitals chains and a large number of standalone hospitals and nursing homes
Note: Metros – Top 7 cities; Tier 1 cities – Population > 1Mn; Tier 2 cities – Population: 0.5Mn - 1Mn
Source: Deloitte research and analysis, hospital websites, investor presentations of hospitals, news articles
8 – 10 corporate hospital
chains
Medium and large sized hospitals
(100 - 750 beds)
Small hospitals/ nursing homes
(< 100 beds)
xIndicates number of hospitals in the
corresponding category
8,000 – 9,000
2,000 – 2,500
200 - 250
Metros Tier 1 cities Tier 2 cities Beyond Tier 2
Prim
ary
Se
co
nd
ary
Tert
iary
Medium and
large hospitals
present mainly
in metros/ tier
1 cities and a
few tier 2 cities
- focus on
secondary &
tertiary care Q
ua
tern
ary
Small hospitals
present across
India – provide
primary and
secondary care
Corporate
chains mainly
present in
metros and a
few/ top tier 1
cities – focus
on tertiary and
quaternary
care
©2016 Deloitte Touche Tohmatsu India LLP 18
• Top 8 corporate chains own ~200 hospitals, with 30,000
beds
• Global players like Parkways, Colombia Asia, John
Hopkins etc. entering India
• New corporates entering healthcare e.g., HCL, Toyota,
Havells, etc.
• Labs too witnessing corporatization with players like
SRL, Thyrocare, etc.
India’s private hospital sector – emerging trends
Corporatization of healthcare providers
• Focused models tailor-made for rapid expansion like
day care/short stay surgery centers, hub and spoke,
etc. being setup, e.g., HCG, Nova
• Partnership model — Apollo sugar clinics with pharma
major Sanofi as partner
• Labs using “hub and spoke” model to tie-up with
collection centers across Tier 1/2/3 cities
• Have attracted funding from PE/VC players - driving
innovations spanning across delivery models,
technology, offerings etc.
New healthcare delivery formats
• Healthcare providers focusing on Tier 2/3 cities due to:
− Lower competition & rentals w.r.t Metro/Tier 1 cities
− Relatively lower rental / real estate costs
− Emerging models like hub and spoke / clusters
enabling effective penetration
• Tier 2 cities to account for > 50% of proposed bed
addition for Apollo in the next 3 years
• Tier 2 focused chains like Vatsalya, Glocal have
emerged of late
Increasing interest in Tier 2/3 cities
• Increasing popularity of accreditation due to quality
focus driven by:
− Higher reimbursement rates for accredited facilities
− Increasing popularity of medical tourism
− Quality being driven by PE/VC firms
• Even tier 2/3 cities have increasing penetration of
accredited setups
− NABH accredited hospitals – 23% in Tier 2/3 cities
− Applied for NABH – 40% in Tier 2/3 cities
Focus on Quality
©2016 Deloitte Touche Tohmatsu India LLP 19
India’s private hospital sector – key challenges
Delay in expansion and
operationalization of new
projects
1
Limited availability
of healthcare professional
including doctors, nurses etc.
2
Insurance coverage remains
low (% insured) as well as
inadequate (total coverage)
3
Access to low-cost
funding given the need for
high investment upfront
4
Longer credit periods
esp. with emergence of
cashless health insurance
5
Hospitals focusing on
‘hotel’ like services facing higher
pressure on margins
6
Limited focus on
efficiency given lack of
protocols, SOPs etc.
7
Increasing bargaining power
of insurance players resulting
in rationalization of prices
8
Key
Challenges
©2016 Deloitte Touche Tohmatsu India LLP 20
India’s Public Health challenges are reflected in several
indicators
Key
Indicators
India accounts for the highest number of pregnancy related maternal deaths, newborn and
child deaths in the world;
50% of Indian women suffer from some form of anemia (mild, moderate or severe)
40% of India’s children < 3 years of age are underweight; 70% children under 5 years of
age are anemic
India has the highest burden of Tuberculosis (TB) patients in the world, more than 20% of
global incidence
Non-Communicable Diseases(NCDs) account for 60% of total deaths in the country (~ 1
crore each year)
44% of the country still defecates in the open, with poor access to safe drinking water and
sanitation facilities
©2016 Deloitte Touche Tohmatsu India LLP 21
Challenges are related to several socio, economic,
cultural & environmental determinants
Low income levels & poor
access to nutrition- economic
Deprivation
1
Low literacy levels
2
Poor awareness levels and
slow uptake on behaviour
change
3
Limited availability of
infrastructure
4
Severe shortage of skilled
manpower
5
Poor access to promotive,
preventive and curative care
6
Poor environmental conditions –lack of safe
drinking water, toilets, poor living conditions
7
Gender Inequalities - Low
status of women
8
Key
Challenges
©2016 Deloitte Touche Tohmatsu India LLP 22
4-5%
Others*
Commercial
21-22%
Low healthcare spends, poor insurance penetration &
skewed distribution of infrastructure further aggravate the
situation
Overall low healthcare expenditure (as % of GDP)
Skewed distribution of healthcare infrastructure across India
Overall low insurance penetration
Stark urban and rural inequities continue to exist
3.7%
9.2%
5.0%
9.0% 9.6%
17.6%
India Globalaverage
China Brazil UK USA
~70% of total health expenditure is by private sector~70% of total health expenditure is by private sector
74% 26%
Not-Insured
Insured
Only 50M people out of 125 B have commercial health insurance;
~67% of total health expenditure is out of pocket
>2
1.5-2
1-1.5
<1
State-wise beds
per 1000
Note: Please review
the grey shade (<1) as
the corresponding
areas in input file has
different gradient
shades.
70%
35% 33% 30%
30%
65% 67% 70%
Population Hospitals Doctors Hospital Beds
Rural Urban
~1.2B ~55K ~0.9M ~1.6M
©2016 Deloitte Touche Tohmatsu India LLP 23
Government’s Role and Emerging Priorities
• Convergent approaches across sectors for
maximum consolidated gains (esp. among
health, nutrition, sanitation & education)
• Evidence-based programming for maximum
impact and value for money
• Use of technology and low cost innovations to
improve access, affordability and inclusion
• Engaging private sector to address the large-
scale challenges
• Innovative financing for funding needs
• Transcending beyond insurance to health
assurance (universal coverage), to achieve
adequate nutritional status, education and
sanitation
• Move from a Health Policy formulation to a
“Health in All” policy
IMPLEMENTATION/SERVICE DELIVERY
Elaborate 3-4-5 -tier structures exist under NHM,
ICDS, SBA, SSA to support implementation of
programme from the state, region, district, block to
village level and reach the unreached
POLICY FORMULATION
Formulate & issue various Policy Documents -
National Health, Water, Nutrition, Urban Sanitation
Policy
PROGRAMME DESIGN
Evidence-based programming in line with emerging
priorities. NHM, ICDS, SBA , SSA; these are designed
to address pressing health, nutrition and social needs
PROCURER/PAYER
Purchaser of products and services such as health
insurance, drugs, medical devices, food, lab services
etc. for its service delivery initiatives
ROLE PRIORITIES
©2016 Deloitte Touche Tohmatsu India LLP 24
Chemicals
©2016 Deloitte Touche Tohmatsu India LLP 25
India – US trade in Chemicals: Much has happened, long
way to go
• Context – Why is the growth in Indo-US trade in Chemicals sector important?
− Chemicals sector accounts for 8% of the current Indo-US trade, with significant potential to grow
− In particular, agrochemicals will be the key growth driver with India emerging as the export hub
− Imperative for global MNCs to leverage the India market given the other challenges it faces (volatile feedstock costs,
stringent regulations, slowing demand and rapid commoditization)
− Imperative for Indian chemical majors to expand and build scale
• Current strength of bi-lateral trade – What has happened so far?
− US is the largest chemicals exports destination for India
− The trade growth has been flat over past few years owing to issues like costs, regulations, etc.
− Organic chemicals constitute a significant part of both imports as well as exports
− Agrochemicals, dyes and pigments are some of the major product segments for exports
• Evolving trends – What’s changing and what are the opportunities and challenges?
− Significant opportunity to scale up the exports – leading chemicals manufacturer, strong global presence, emerging
hub for specialty chemicals and excess capacity available for exports
− Significant opportunity to scale up the imports – Rapid market growth, limited petrochemical intermediate capacity,
growing specialty chemicals markets and increasing MNC presence
− Key challenges for growth of exports – Competition from other low-cost manufacturing hubs, limited petrochemical
intermediate capacity, lack of R&D depth and non-tariff barriers
− Key challenges for growth of imports – Import licenses, patent protection, ease of doing business and tax policies
©2016 Deloitte Touche Tohmatsu India LLP 26
The acceleration agenda: Road ahead for each of the
stakeholders
Indian Government
• Indian Government has a clear vision of boosting Indian presence on the global landscape and have taken
specific steps in that direction
− 100% FDI allowed in chemicals sector and procedures simplified
− Setup of Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR) as investment regions for export-
related activities
• Provide adequate infrastructure facilities at ports / railway depots and pipeline connectivity
• Simplify the importing process – eliminate non-tariff measures, simplify import management measures and
shorten import procedures
Indian Industry
• Enhance existing product portfolio with advantaged products such as specialty chemicals
• Develop India as the low-cost manufacturing hub using alternative feedstock options
US Government
• Reform the export control system to expedite licensing process
• Setup trade agreement and treaties with India to enable free trade
US Industry
• Global MNCs should invest in chemicals manufacturing in India, leveraging their technological expertise and labor pool
in India
• Support India’s growth as the specialty chemicals hub with access to technology
©2016 Deloitte Touche Tohmatsu India LLP 27
• Context – Why is the growth in Indo-US trade in Chemicals sector
important?
• Current strength of bi-lateral trade – What has happened so far?
• Evolving trends – What’s changing and what are the opportunities and
challenges?
• The acceleration agenda – Road ahead for each of the stakeholders
Agenda
©2016 Deloitte Touche Tohmatsu India LLP 28
Chemicals sector will play a pivotal role in achieving ‘Indo-
US trade: Mission 500 billion USD’
91% 92% 92%
9% 8% 8%
2013 2014 2015
Total Indo-US Trade in $ Bn
Other sectors Chemicals
Source: Export Import Data Bank by Department of Commerce, Government of India; Report on Chemicals industry by India Brand Equity Foundation
62 6461
Robust Demand
• A large population,
dependent on agriculture
• High latent demand due to
lower per-capita chemicals
consumption
Attractive opportunities
• Growing demand for
Polymers & Agrochemicals
• At 2% of global demand,
huge growth potential for
construction chemicals
Growing Investments
• Strong presence of foreign
firms
• From 2000 to 2014, FDI in
the industry crossed $10
Bn
Policy support
• 100% FDI allowed, de-
licensing of chemicals
manufacturing
• Setting up of PCPIRs, SEZ
etc.
Chemicals in India
Chemicals sector has a significant share of Indo-US trade with potential to grow further
©2016 Deloitte Touche Tohmatsu India LLP 29
In particular, Agrochemicals presents a significant trade
opportunity…
Exports from India expected to grow >1.5x that of domestic market demand
51%42%
49%58%
2013 2018
Indian Crop Protection Market ($ Bn)
Domestic Exports
Sources: Industry reports; Monitor Deloitte Analysis
8.1 – 8.83.5
India emerging as the global agrochemicals export hub
~22 – 24%
CAGR
~13 – 15%
CAGR
− Low processing costs and cheap labor
− Growing market for off-patent
agrochemical products
− Strong presence of India in generic
pesticide manufacturing
− Availability of excess capacity
©2016 Deloitte Touche Tohmatsu India LLP 30
6%
6%
9%
10%
27%
18%
11%
9%
…with growing presence of international players in India
20%
5%
5%
5%
8%
13%
4%
5%
5%
8%
10%
13%Bayer
Syngenta
BASF
DuPont
MAI
Other MNCs
UPL
Rallis
Indofil
Dhanuka
PI
Other Indian
companies
44% 56%% of the
Market
Crop Protection Market Share (FY13)
34% 66%
Hybrid Seeds Market Share (FY13)
Indian CompaniesMNCs
1%
Nunhems
Syngenta
Pioneer
Advanta
Monsanto Nuziveedu
Mahyco
Rasi Seeds
Other Indian
companies
Indian CompaniesMNCs
MAI
DuPont/Pioneer
BASF
Syngenta
Bayer/Nunhems
Rasi Seeds
Mahyco
PI
Indofil
Dhanuka
Other Indian Companies1
Rallis
NuziveeduOther MNCs
UPL/Advanta
Monsanto
% represent
the market
share
Players with integrated offerings (Seeds + CP)
Expected Share Increase
Note: 1May also include companies which have not been individually evaluated as belonging to either category of MNC or Indian companies; MAI – Makhteshim Agan India;
Source: Ken Research; Feedback Research; Monitor Deloitte Analysis
©2016 Deloitte Touche Tohmatsu India LLP 31
India’s basmati exports to US expected to grow
Sources: All India Rice Exporters Association Statistics; News reports
US is a strong branded market which helps
set benchmark prices for other markets
− India is the world’s largest rice exporter
accounting for ~25% of the global rice trade
by volume
− India’s rice exports to US had been hit since
2011, as US blocked imports due to traces
of tricyclazole, a widely used pesticide in
India
− However, in 2014, the U.S. Environmental
Protection Agency (EPA) fixed the import
intolerance for tricyclazole at 3 ppm
− This is expected to significantly increase
India’s rice exports to US
91,544
103,391
89,223
2.7%2.8%
2.4%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
0
30,000
60,000
90,000
120,000
2013 2014 2015
Sh
are
in
Ba
sm
ati
ric
e e
xp
ort
s f
rom
In
dia
Ex
po
rts
in
MT
Stagnant basmati rice exports to US… …expected to pick up again, driven by
easing of import regulations
©2016 Deloitte Touche Tohmatsu India LLP 32
Global MNCs are facing multiple challenges – volatile
feedstock costs, stringent regulations, slowing demand
and rapid commoditization
• For basic chemicals, increased labor and feedstock costs are causing stress on manufacturers’ margins
• As oil and natural gas supplies dwindle, the industry needs to find ways to reduce dependence on non-renewable resources
High and Volatile Feedstock Costs
• Stringent regulations like REACH in Europe increase compliance costs for chemicals manufacturers
• High import tariffs and export subsidies in markets like EU and North America make it uncompetitive for other countries
Stringent Regulations
• Strong dollar weighed on the performance of chemicals manufacturers by reducing their attractiveness in overseas markets
• China and Europe markets which contribute to bulk of the chemicals demand are witnessing sluggish growth
Slowing Global Demand
• Product lifecycle of specialty chemicals is getting shorter making it difficult to recover the R&D costs
• Availability of advanced technologies making it easier for competitors to replicate the products
Rapid Commoditization
©2016 Deloitte Touche Tohmatsu India LLP 33
Indian industry is expanding beyond borders looking to
generate scale
• Due to its low cost infrastructure, the chemical makers have huge export potential
Cost Advantage
• One fourth of installed capacity is idle which is higher than global average• Over the past 5 years, installed capacity has grown by ~2.5% while the
production has only grown at ~2%
Available capacity
• India does have the advantage for exports in pharmaceuticals, dyestuff and agrochemicals through strategic alliances with countries like Russia
• Availability and abundance of raw materials for titanium dioxide and agro-based products, provide an opportunity to create significant value addition
Global Manufacturing Hub
• With the expertise and know-how available in the country coupled with increasing investments, Indian industry is ready to take on the global field
Existing Know-How
©2016 Deloitte Touche Tohmatsu India LLP 34
• Context – Why is the growth in Indo-US trade in Chemicals sector
important?
• Current strength of bi-lateral trade – What has happened so far?
• Evolving trends – What’s changing and what are the opportunities and
challenges?
• The acceleration agenda – Road ahead for each of the stakeholders
Agenda
©2016 Deloitte Touche Tohmatsu India LLP 35
US is the leading destination for Indian Chemicals
exports…
2,812
1,607
1,021
842 840 790
618 614 593 591
US China Germany Brazil UAE Indonesia Netherlands Belgium Malaysia Japan
Chemicals Exports from India (2014-15) in $ Mn (top 10 countries)
Sources: Export Import Data Bank by Department of Commerce, Government of India
US alone accounts for 13% of Indian chemicals exports
©2016 Deloitte Touche Tohmatsu India LLP 36
…but has grown at a rather slow rate in the recent past
$1,993
$2,539$2,663 $2,649
$2,812
2011 2012 2013 2014 2015
India’s Chemicals Exports to US in $ Mn
Sources: American Chemistry Council Year end situation & outlook-2015; Export Import Data Bank by Department of Commerce, Government of India
+15.6%
+2.8%
4-5%
India’s chemicals
production growth
(2013-15)
2-3%
US’ chemicals
production growth
(2013-15)
©2016 Deloitte Touche Tohmatsu India LLP 37
Growth drivers – Organic Chemicals accounts for
significant part of the total Indo-US trade
Sources: Export Import Data Bank by Department of Commerce, Government of India
$0.7 B$1.7 B
$2.4 B
Others Total imports
during 2014-15
Organic
$1.7 B $1.2 B
$2.9 B
Others Total exports
during 2014-15
Organic
©2016 Deloitte Touche Tohmatsu India LLP 38
• Other than organic chemicals, US was a
major source of India’s import of insecticides
and dyes, tannings and coloring materials
• India is one of the largest importers of
phosphate fertilizers from the US
Nature of bi-lateral trade currently focused on specific
segments
Low share of wallet in each segment for US as well as for India
Imports from US
• India is one of the most dynamic generic
pesticide manufacturer with US as a key
export destination
• Dyes and pigments have emerged as a
strong industry and a major foreign exchange
earner for India
Exports to US
©2016 Deloitte Touche Tohmatsu India LLP 39
• Context – Why is the growth in Indo-US trade in Chemicals sector
important?
• Current strength of bi-lateral trade – What has happened so far?
• Evolving trends – What’s changing and what are the opportunities and
challenges?
• The acceleration agenda – Road ahead for each of the stakeholders
Agenda
©2016 Deloitte Touche Tohmatsu India LLP 40
However, significant opportunities exist for exports…
Leading chemicals manufacturer
Emerging hub for specialty Chemicals
Strong global presence
Excess capacity
Right infrastructure and capability in India to service the US market
33
17 17
52
China EU NFTA JAPAN India
Share (%) of Global Chemicals Industry in 2013
~7% of the world production of dyestuff
and dye intermediates
4th largest producer of agrochemicals
165
300
500
2005 2010 2015
Polymer chemicals growth (USD Mn)
+11.7%
Sources: Chemicals & Petrochemicals Statistics at a Glance 2014, Ministry of Chemicals & Fertilizer; CEFIC (European Chemical Industry Council) Facts and Figures report 2014;
Chemical Industry Situation and Outlook by American Chemistry Council
76 76 78 78 79
2010 2011 2012 2013 2014
Capacity Utilization (%) in Chemicals Industry
Global average > 86%3rd largest consumer of polymers
©2016 Deloitte Touche Tohmatsu India LLP 41
…as well as imports
Rapidly growing imports
Growing specialty chemicals market
Limited petrochemical intermediates capacity
Increasing MNC presence in India
Attractive India market for global MNC portfolio
3.7 BT
5.5 BT
6.5 BT
7.9 BT
2008 2010 2012 2014
~45% of current requirements are
imported
~25 Mn projected shortfall by 2025
176
22
231
90
0
100
200
300
North America India
2010
2020E
Sources: Chemicals & Petrochemicals Statistics at a Glance 2014, Ministry of Chemicals & Fertilizer; CEFIC (European Chemical Industry Council) Facts and Figures report 2014; Report
on Chemicals industry by India Brand Equity Foundation
Demand in India to quadruple over the 2010-20 period
Global chemicals majors expanding in the
Indian market to cater to the growing
domestic market and utilize country’s low
cost R&D and manufacturing infrastructure
©2016 Deloitte Touche Tohmatsu India LLP 42
Hurdles for growth of Indian exporters into US
Lack of R&D depth for
specialty chemicals• India has a growing presence in specialty chemicals, but requires significant
investment in R&D capabilities to compete effectively at the global level
Key issues Description
Competition from other
low-cost manufacturing
hubs
• Despite reasonable export presence, India lacks significantly behind its Asian
counterparts; Inadequate infrastructure and lack of availability of low-cost feedstock
for production create challenges
Regulatory hurdles
(‘Non-tariff barriers’)
• Compliance with the stringent Toxic substances Control Act (TSCA) required to
import chemicals into US
Limited domestic capacity
in petrochemical
intermediates
• High import dependency (~45%) in petrochemical intermediates poses supply
challenges for the downstream chemicals industry in India
©2016 Deloitte Touche Tohmatsu India LLP 43
• Context – Why is the growth in Indo-US trade in Chemicals sector
important?
• Current strength of bi-lateral trade – What has happened so far?
• Evolving trends – What’s changing and what are the opportunities and
challenges?
• The acceleration agenda – Road ahead for each of the stakeholders
Agenda
©2016 Deloitte Touche Tohmatsu India LLP 44
Government has a clear vision of boosting Indian
presence on the global landscape and have taken specific
steps in that direction
Prime Minister Modi’s recently released foreign trade policy aims to, among other things:
• Double exports of merchandise and services from $465.9 billion in 2013-14 to $900 billion by 2020
• Increase India’s share of world trade from 2% to 3.5%
Policies have been initiated to setup integrated Petroleum, Chemicals and Petrochemicals Investment Regions
(PCPIR); PCPIR will be an investment region spread across 250 square kms for manufacturing of domestic and export-
related products of petroleum, chemicals and petrochemicals
The Indian Chemical Council (ICC) assigned as the nodal agency/signatory representing India under the ‘Responsible
Care Initiative’
Chemicals is expected to play a major role in achieving the government’s 2020 vision and specific steps have been taken
in that direction
Government is continuously reducing the list of reserved chemical items for production in the small-scale sector,
thereby facilitating greater investment in technology up-gradation and modernisation
Procedures related to FDI have been simplified; most of the items in the chemicals sector fall under the automatic
approval route of FDI/NRI/OCB investment up to 100 per cent
©2016 Deloitte Touche Tohmatsu India LLP 45
Major focus areas (1/4)
• US has FTAs in effect with 20 countries and bilateral investment treaties
(BITs) to promote exports; efforts need to be made to enter trade
agreement and treaties with India to enable free trade
• Assess anti-dumping duties on chemicals imported from India
• Support marketing initiatives such as road shows to promote the Indian
chemicals industry
• Continuous availability of feedstock (naphtha and natural gas) at
competitive costs; explore possibility of setting up reverse SEZs in
countries such as Mozambique, Iran and Myanmar
• Adequate infrastructure facilities at ports and railway depots and
pipeline connectivity; ensure continuous power supply
• Attractive PCIPR policy for states to implement and attract investment
• Ensure IPR protection with strong legal framework
Exports to the US
©2016 Deloitte Touche Tohmatsu India LLP 46
Major focus areas (2/4)
• Continue to invest in chemicals manufacturing in India, leveraging their
technological expertise and labor pool in India, to develop it as a global
exports base
• Increase alliances with local Indian firms and forge long-term supply
relationships
• Enhance existing portfolio with advantaged products – e.g. commodity
chemicals companies can improve their portfolio by adding specialty
chemicals
• Focus on alternative feedstock options – coal gasification, syngas and
pet coke – to emerge as the low-cost outsourcing option in the global
market
• Setup R&D centers to tap India’s cost advantage and build IP
• Leverage the priority sector status for chemicals under ‘Make in India’
Exports to the US
©2016 Deloitte Touche Tohmatsu India LLP 47
Major focus areas (3/4)
• Reform the export control system to expedite the licensing process and
lessen the compliance burden on both the Department of Commerce’s
Bureau of Industry and Security (BIS) and industry
• Facilitate low-risk trade between corporate entities by creating an
effective and efficient Intra-Company Transfer (ICT) license that allows
trusted companies to exchange technology freely within their own
organization
• Identify focus areas for the chemical industry and facilitate the importing
process with a focus on tariff and non-tariff barriers
Imports into India
©2016 Deloitte Touche Tohmatsu India LLP 48
Major focus areas (4/4)
• Support Indian players to meet their petrochemicals needs
• Partner with Indian players / setup Indian subsidiaries to help develop
India as the specialty chemicals hub and provide feedstock access
• Develop long-term supplier relationships (strategic supplier) with US
players to ensure supply reliability and lower costs
• Setup R&D centers in collaboration with US players for access to
technology in return for feedstock supply
Imports into India
©2016 Deloitte Touche Tohmatsu India LLP 49
Life Sciences
©2016 Deloitte Touche Tohmatsu India LLP 50
India – US trade in Life Sciences: Much has happened,
long way to go
• Context – Why is the growth in Indo-US trade in Life Science sector important?
‒ Life Sciences will play a pivotal role accounting for ~9-10% of the targeted Indo-US ~$500B Trade
‒ Imperative for global MNCs to leverage the India market given the other challenges it faces (R&D pipeline,
increasing costs, sluggish market growth, patent expiries etc.)
‒ Imperative for Indian pharma majors to expand and build scale by expanding in the US market
• Current strength of bi-lateral trade – What has happened so far?
‒ US accounts for the largest share of global pharma trade for India
‒ But the growth has been rather slow in the recent past due to broad market conditions
‒ Generics export from India constitute a significant part of the total trade
‒ Multiple other segments with low volume of business between the two countries
• Evolving trends – What’s changing and what are the opportunities and challenges?
‒ Significant opportunity to scale up the exports – large capacity built up, highest # of FDA approved plants and high
demand for low cost Generics in the US
‒ Significant opportunity to scale up the imports – Fast market growth, good paying capacity and strong local presence
of global majors
‒ Key challenges for growth of exports – delayed regulatory approvals and consolidation of pharmacy players in the
US
‒ Key challenges for growth of imports – market barriers (like low affordability, low awareness, access), continuously
evolving IP regime
©2016 Deloitte Touche Tohmatsu India LLP 51
The acceleration agenda: Road ahead for each of the
stakeholders
• Indian Government and the Industry
• Indian Government has a clear vision of boosting Indian presence on the global landscape
‒ Double exports of merchandise and services from $465.9 billion in 2013-14 to $900 billion by 2020
‒ Increase India’s share of world trade from 2% to 3.5%
• Policy changes to ensure a level playing field
• Indian industry needs to further institutionalize focus on product quality internally to meet the FDA requirements
• US Government and the Industry
• Expedite drug approval process to ensure easier and faster access for Indian firms to the US markets
• Global MNCs need to bring newer technology / drugs to the Indian market
©2016 Deloitte Touche Tohmatsu India LLP 52
• Context – Why is the growth in Indo-US trade in Life Science sector
important?
• Current strength of bi-lateral trade – What has happened so far?
• Evolving trends – What’s changing and what are the opportunities and
challenges?
• The acceleration agenda – Road ahead for each of the stakeholders
Agenda
©2016 Deloitte Touche Tohmatsu India LLP 53
Life Sciences sector will play a pivotal role in achieving
‘Indo-US trade: Mission 500 billion USD’
1.3% 6.0% 9.0%
98.7% 94.0% 91.0%
2005-06 2014-15 2020
Merchandise Trade in billion US$
Life sciences Others
Source: Export-Import Bank (EXIM), Deloitte Analysis
65 50020
Despite pressures, the pharmaceutical industry has been eyed as the key contributor in terms of
export growth
Growth required in the next 5 years is 3x the growth achieved in the last 10 years
• With 40% of prescription and OTC drugs sold in US coming from India, the commercial stake in pharmaceuticals as
part of the overall trade is undisputable
Pharma Exports to US
• Significant headroom for growth due to increasing
demand from US for high quality generic drugs
• However, India is facing restrictive growth:
− Grew at a modest ~10% to US$ 3.84 Bn in 2014
from US$ 3.45 Bn in 2013
− Estimated slow down in growth due to USFDA
scrutiny
Pharma Imports from US
• Grew at ~13% to US$ 0.31 Bn in 2014 from US$ 0.27
Bn in 2013
• Innovative drugs to treat changing disease profiles
will an important element of growth
− In 2014, 41 novel drugs were approved by the
FDA, 17 of which were for the treatment of rare
diseases
©2016 Deloitte Touche Tohmatsu India LLP 54
Facing challenges in their home markets, global MNC’s
are looking at some of the key pharma-emerging markets
with India leading the pack
• Global MNCs reeling under multiple challenges –
patent expirations, de-growth in local markets,
dry R&D pipeline and increasing costs
Diversify Risks
Build &
manage
talent
Optimize
cost
efficiency
Manage market
saturation
Optimize
R&D
Manage
Regulatory
Environment
GLOBAL MNC
CHALLENGES
The imperatives for Global MNCs facing
industry challenges
Investments
Capital and technology investments
for setting up manufacturing facilities
in low cost markets
Innovation
New market specific innovation to
help capture share while addressing
affordability and accessibility
Work with local partners
Collaboration within the wider
ecosystem with a strategy to tap
domestic demand
Beyond Products
Undertake awareness and market
building initiatives at the industry
level
©2016 Deloitte Touche Tohmatsu India LLP 55
Demand and supply-side dynamics provides an
opportunity for growth in India (1/2)
Demand Side Factors
• Under penetration of pharmaceutical
market presents scope for growth,
which is also linked to the growth of
the overall healthcare industry.
• With adequate support, industry
believes that Indian market could grow
to USD 30 by 2016 and have
significant share in global market by
2025
US
Japan
Canada
EU5
Rest of Europe
Brazil
Russia
China
India
Lower per capita consumption of
pharmaceuticals (Estimated for 2016)
Newer Markets opening up due to India based innovation
Indian Products Newly developed exports market
Dr. Reddy’s Lab: Gastro-intestinal, Anti-
infectives, Oncology, Neurology, Dermatology,
Pain Management
Russia, Ukraine, South Africa, Australia,
New Zealand, Southeast Asia
Sun Pharma: Chronic therapies like metabolic
syndrome, diabetes, neurology and cardiology
Mexico, Brazil, Russia & CIS, South Africa
Lupin Pharma: Pediatrics, Dermatology, GI,
Opthal
Central Eastern Europe, Japan, Russia,
Latam
Trivitron: Low cost tech. products and services Middle East, SE Asia, and Africa
USA
USAChina
Africa
Middle
East
South East Asia
Japan
Top export destinations from India
Newly developed Markets
©2016 Deloitte Touche Tohmatsu India LLP 56
Demand and supply-side dynamics provides an
opportunity for growth in India (2/2)
Supply Side Factors
Shortening of lead-time and better
serviceability
India as a de-risking option in the region
USA
Brazil
MexicoPuerto Rico
IrelandUK
With large number of
USFDA-approved and
UK MHRA - approved
manufacturing facilities,
major hub for the
manufacture of generics
Indigenous manufacturing
to boost healthcare
service providers and
provide better access to
healthcare seekers
Deeper penetration of
healthcare services into
complex geographies of
India, hence, increasing
access of pharmaceuticals
India is at a cusp and this is the right time to invest and build
Germany
India
China Japan
Singapore
Major Consumption location
Major Export location (Exports > Indigenous Manufacturing)
Consumption + Export/Manufacturing location
India presents a good opportunity for companies to de-risk their business
from dependency on one manufacturing location and tap potentially huge
domestic market at the same time
©2016 Deloitte Touche Tohmatsu India LLP 57
• Context – Why is the growth in Indo-US trade in Life Science sector
important?
• Current strength of bi-lateral trade – What has happened so far?
• Evolving trends – What’s changing and what are the opportunities and
challenges?
• The acceleration agenda – Road ahead for each of the stakeholders
Agenda
©2016 Deloitte Touche Tohmatsu India LLP 58
US is the top destination for Indian pharma exports…
Source: PHARMEXCIL, Monitor Deloitte analysis
Asia Pacific: China, Japan, Australia, Bangladesh, Pakistan, Malaysia, Philippines, New Zealand, Thailand, Vietnam, Indonesia; Latin America: Brazil, Argentina, Mexico, Peru, Colombia,
Chile, Venezuela; Europe: U K, Spain, Italy, Germany, France + Switzerland.
US has been the single largest export
destination for India
− India’s pharmaceutical exports registered
slowest growth in at least 15 years in 2013-14
− 1.9 per cent to USD 14.9 billion
− Missed the target of USD 25 billion set for 2014-
15 registering only US$ 15.3 billion
− US continues to be India’s top destination for
Indian pharmaceutical exports
− Despite slowdown and set-backs over last 2 years,
Indian companies recognize the potential of the
US market
− Indian manufacturers are looking at complex
generic drugs and niche products, mainly in
dermatology, gastro-intestinal and injectables to
drive the next phase of growth in US
− Lupin bought GAVIS Pharmaceuticals, US for
$880 million to strengthen its presence in its
largest market
Indian Export Market Growth Key insights
Accounts for ~28% of Indian pharma exports
CAGR (2013-2015)
Trade in B US$
2.64%
2014-15
10%
28%
15.3
2013-14
9%
27%
USA
Europe Asia Pacific
Latin America
47%
10%
Others
14.9
6%5%
9%
49%
-1.24%
8.1%
-2.57%
5.65%
16.71%
©2016 Deloitte Touche Tohmatsu India LLP 59
Nature of bi-lateral trade currently focused on specific
segments
• The complex generics market estimated to outperform
the growth rate of the overall market by at least two times;
more patents expiring in this segment in the next few years
• Competitive intensity in the complex generics segment is
relatively low, thereby allowing pharmaceutical companies
to enjoy higher pricing power
• India has low share of wallet in this high-opportunity space
requiring significant investments in R&D expenses
Low share of wallet in high growth segments for US as well as for India
Low presence of Indian Companies in the
complex generics market in US
USA imports have yet to capture the growth
segments in India
~25
~25
$B
2015
Market Share of US generics
<15%
share
Indian drugmakers get less
than 15% of their US
revenue from sales of
complex generics in the US
Complex GenericsMe-too generics
Me-too generics growth estimated to
reduce to 1% by 2020 compared to
15% CAGR over 2010-15
Only 14% of New Molecular Entities (NMEs)
across all medicine classes in India as of
2013
Spending on oncology medicines is expected
to grow
Biosimilar will play a greater role in especially
in cancer treatments
Fast growing therapy areas such as vascular,
osteoporosis and diabetes needs attention
US has yet to capture therapies that will drive uptake
in India
©2016 Deloitte Touche Tohmatsu India LLP 60
• Context – Why is the growth in Indo-US trade in Life Science sector
important?
• Current strength of bi-lateral trade – What has happened so far?
• Evolving trends – What’s changing and what are the opportunities and
challenges?
• The acceleration agenda – Road ahead for each of the stakeholders
Agenda
©2016 Deloitte Touche Tohmatsu India LLP 61
Opportunities exist for exports…
• India ranks third in terms of volume of production accounting for 10% by volume of global pharma
production
• India’s generic drugs account for 20% of global exports in terms of volume, making the country the
largest provider of generic medicines globally
• Largest exporter of formulations in terms of volume with 14% market share
• India’s cost of production is almost 60% lower than that of the USA and almost half of that of Europe
• India accounts for 49% of Drug Master Files (DMFs) filed with the USA, which is the highest outside of
the USA
• Approval time for new facilities has been drastically reduced
Right infrastructure and capability in India to service the US market (1/4)
©2016 Deloitte Touche Tohmatsu India LLP 62
Opportunities exist for exports…
Right infrastructure and capability in India to service the US market (2/4)
• Highest number of USFDA approved manufacturing plants (22% of overall US FDA approved facilities)
Bahadurgarh
Gurgaon
Ballabgarh
Faridabad
Baddi
Mumbai
Pune
Aurangabad
Ambernath
Goa
Chennai
Puducherry
Palakkad
Thiruvananthapuram
Trivandrum
Hyderabad
Sri City SEZ
Namnapally
Bangalore
Kolkata
Bhilad
Kashipur
Piramal‟s USFDA-approved
manufacturing plant in Hyderabad
GlaxoSmithKline has a major facility at
Rajahmundry, Andhra Pradesh
Lupin has an USFDA approved plant at
Tarapur, Maharashtra. The facility forms
the core of Lupin's fermentation
capabilities
Dholka in Gujarat houses a major
manufacturing facility of Cadila,
which spans over 100 acres
Ranbaxy‟s API
manufacturing facility at
Toansa, Punjab
Mandideep in Madhya Pradesh is
the manufacturing hub for Lupin‟s
cephalosporin and ACE-Inhibitors;
Cipla has a formulations
manufacturing plant at Indore
Wockhardt's facility covers an area of 40,468
sq meters in Baddi, Himachal Pradesh
Baddi is also home to Cipla‟s formulations
manufacturing facility
State with higher level of manufacturing
State with medium level of manufacturing
State with low or no manufacturing
City with higher level of manufacturing
©2016 Deloitte Touche Tohmatsu India LLP 63
Opportunities exist for exports…
Right infrastructure and capability in India to service the US market (3/4)Demand for low cost Generics with more products approaching patent cliff
Source: IBEF, Secondary Research, ReportsnReports, Monitor Deloitte analysis
2020E2015
Biosimilars Market, USA
India expected to grab
20-25% global share
with US being an
important market
Huge portion of biopharma products going off patent –
~USD 67 Bn worth biological expected to go off patent by
2020
Discounted pricing as compared to the branded – About
10-80% of innovator price
Gro
wth
Dri
ve
rs
Preference for safer, biopharma drugs, especially for
chronic conditions – Preference over chemical drugs for
its non-toxic qualities
Increased Focus on Biosimilars
Private
Government
Increased Govt. spending: plans to allocate USD 70 Mn for
local players to develop biosimilars
Issued guidelines on regulatory requirements for marketing
biosimilars to streamline approval process
In addition to in-house development of biosimilars:
Increased partnerships and collaborations (local & MNCs
both) – Biocon with Mylan & Pfizer, Intas with Apotex, Dr.
Reddy’s with GSK etc.
Acquisitions to expand presence in biosimilars – Cipla
bought stake in Bio Mab China, Ranbaxy in Zenotech etc.
Almost negligible
market (Zarxio is
the first biosimilar
launched in 2015)
$11 B
The global biosimilars market is expected to reach $6.22 Billion by 2020 from $2.29 Billion in 2015, growing at a CAGR of
22.1% from 2015 to 2020
©2016 Deloitte Touche Tohmatsu India LLP 64
Opportunities exist for exports…
Right infrastructure and capability in India to service the US market (4/4)
Prime Minister Modi’s recently released foreign trade policy aims to, among other things:
• Double exports of merchandise and services from $465.9 billion in 2013-14 to $900 billion by 2020
• Increase India’s share of world trade from 2% to 3.5%
• Lower cost of financing: through interest
subventions
• Simplification of set up procedures
• Simplification of labor laws
• Increase in availability of skilled resources
• Focus on accreditation/certification mechanisms
for pharmaceuticals manufactured in India
• Special incentives for exporting pharmaceuticals
from India
• Easing of export regulatory requirements
Government has a clear vision of boosting Indian
presence on the global landscape and have taken
specific steps in that direction
New Manufacturing Policy aims to raise
manufacturing contribution to GDP from 16%
(~USD 0.3 Tn) in 2013 to..
25% of GDP (~USD 1 Tn) by 2025
Source: DIPP
©2016 Deloitte Touche Tohmatsu India LLP 65
Opportunities for imports
• Steady population growth, a large elderly population,
and rising income levels are generating significant
need for health care services in India
Need for global MNC portfolio in the Indian market (1/5)
One of the fastest growing domestic pharmaceutical market
Demographic Factors Growth (2009-2014E) Indian Pharmaceutical Market, USD Bn
• Indian pharmaceutical market is expected to reach
$30B by 2016 and $55B by 2020; , fuelled by socio-
economic growth drivers, largely dominated by
branded generics, MNCs have seen success in this
market
3.0%
3.1%
2.9%
0.9%
15.8%
15.9%
4.0%
1.5%
0.0% 10.0% 20.0%
Per Capita HealthSpend
Per Capita GDP
Aged Population
Total Population
India
U.S.
2009-2014 CAGR
Source: The Economist Intelligence Unit (September 2010)
4th Largest
in Asia-
Pacific
11%
14%
2018
33.9
2016
29.2
2014
21.8
2012
16.1
2010
14.3
Expected Pharma Market Growth, CAGR 2012-17
US: 1 -
4%
UK: 1 -
4%
Japan:
2 - 5%
China:
15 -
18%
Brazil:
11-14%
India:
11-14%
Expected to
move up to
6th place
globally by
2020 55.0
2020
©2016 Deloitte Touche Tohmatsu India LLP 66
Opportunities for imports
• Although the incidence of infectious diseases is high in
India, the country’s growing affluence is driving lifestyle
diseases
Need for global MNC portfolio in the Indian market (2/5)
Demand for patented products with increasing prevalence of lifestyle disease profile
Shifting disease burden Increasing incidence of chronic diseases
Cardio-
vascular
Estimated 64M CVD cases in 2015; leading
cause of death in India
COPDCOPD patients at 18.2M, estimated to reach 20
M in 2020; second leading cause of death in
India
Diabetes~65 million diabetic people in 2015, 77 million
pre-diabetic stage patients
Obesity60 million obese individuals; 3rd highest
number of obese people in the world
Smoking 110M smokers to increase to 120M
39%27%
14%
36% 63%
76%
25%
10% 10%
1970 2006 2030
Communicable NCD Injuries
©2016 Deloitte Touche Tohmatsu India LLP 67
Opportunities for imports
• Specialty and Super-specialty therapies have grown at significantly higher rates than mass therapies driven mainly by
increased affordability, awareness and better tertiary healthcare infrastructure
Need for global MNC portfolio in the Indian market (3/5)
Promising Specialty & Super-Specialty Therapies
Specialty Therapies
• Includes several chronic conditions and niche acute
conditions
• High growth as compared to mass therapies –
expected to become comparable in size to mass
therapies by 2020 (~USD 13-20 Bn)
Super-specialty Therapies
• Includes niche therapies such as oncology, urology,
nephrology, fertility etc.
• Currently, a small part of market; with double the
market growth rate – expected to be USD 5 Bn market
by 2020
Players across the value chain are increasingly exploring this opportunity
Drugs/ Treatments
• Large number of NMEs and
APIs in specialty/ super-
specialty areas by Indian and
MNC players
Services/ Devices Delivery
• Rising number of specialty &
super-specialty tertiary
healthcare providers
- Business Standard, 2012
- The Indian Express, 2013
“Quest extends
access to
advance cancer
testing services in
India”
- Business
Standard, 2014
Source: IMS Data, ICRA, News Articles, Secondary Research, Monitor Deloitte analysis
©2016 Deloitte Touche Tohmatsu India LLP 68
Opportunities for imports
• National scheme to fund up-gradation of existing medical colleges in the country
− Conversion of public sector tertiary care hospitals into teaching institutions
• In addition to 6 new AIIMS, further new AIIMS-like institutions would be established during the 12th Plan
• Expansion of Primary Health Center, Community Health Center and First Referral Unit network
Need for global MNC portfolio in the Indian market (4/5)
Estimated over USD 200 Billion is to be spent on medical infrastructure in the next decade
Increase in The Number of Beds in India Expansion by Private Players (# of Beds, 2015)
Expansion of Health Care Facilities by the Government
Source: Industry reports, Deloitte analysis
389577
373
605
188
978
2002 2010Private Public
762
1,555
49%
51%
63%
37%
Beds in 000’s 2002-2010
CAGR
12.8%
5.1%
12,000
8,717
7,500
4,900
3,649
1,973 1,912
CAREMaxAravindManipalNarayanaApolloFortis
©2016 Deloitte Touche Tohmatsu India LLP 69
Opportunities for imports
• Low Insurance Penetration Rate Offers Opportunities
for Private Insurers; multiple initiatives have been
taken by private companies and Government of India
to increase healthcare awareness amongst the
population
Need for global MNC portfolio in the Indian market (5/5)
Though lack of institutional payor industry, sufficient paying capacity at a consumer level
Health insurance is likely to reach a penetration level of 45%
by 2020
Health Insurance Coverage in India
Note: GWP – Gross Written Premiums; Source: World Bank Database, FICCI, IRDA Annual Report 2013, Swiss Re Sigma Reports, Monitor Deloitte analysis
Out-of-pocket health expenditure, 2012 (% of private)
GWP
USD Mn
(2013)
Mass
affluent
Mass
market
Below
massSME Corporate
~9023 ~426 ~164 ~1,016
~2,500
Base Lives associated
Penetration 20% Very Low 40%4 10% 70%
Benchmark 90% 75% 65% 75% >85%
Individual Group
202535
13055
120
80
240
110
140
0
100
200
300
400
500
600
700
2010 2020E
Mill
ion p
eople
Govt. employee insurance Private ESIC RSBY State Insurance
UK 57%
58%Brazil
69%
21%US
World
78%China
86%India
©2016 Deloitte Touche Tohmatsu India LLP 70
Regulatory landscape in India has been cited as one of
the challenges for US exports into IndiaPharma Industry
Patents Act 2005
• Patents filed increased by 85% (2004-10)
• 13-fold increase in clinical trials
Timeline
2013
1995
2001
2002
2005
2007
2012
Drug Price Control Order
1995
• 50% reduction in number
of drugs under price
control
• Allowed revision prices of
bulk drugs and
formulations
• Decreased monopoly in
market segments Foreign Direct Investment Policy, 2001
• 100% FDI has led to five fold increase in FDI inflow (2001-14)
Pharmaceutical Policy 2002
• Strengthened indigenous capability for lower cost effective production
• Encouraged R&D with focus on diseases endemic to India
• Free import of formulations, bulk drugs and intermediaries led to 50%
increased in mfg. units (2003-08)
NIPER Act 2007
• 6 new institutes for R&D established
• Research has led to production of cost effective drugsNational Pharma Pricing Policy 2012
• Price regulation for essential 348 drugs led to 50%
reduction in drug prices
• Prices of NLEM drugs linked to WPI led to 80% drop
in launch of new medicines
Drug Price Control Order 2013
• Price fixed for 352 drugs led to fall in
growth of impacted drugs
Gro
wth
Policy related decisions
Financial Incentives provided
Expenditure by government
©2016 Deloitte Touche Tohmatsu India LLP 71
Challenges at multiple fronts is stunting the growth
Indian exporters into USConsolidation in the US markets and rise in USFDA alerts has forced Indian Pharma to
diversify to Non US Markets
USFDA Import Alerts to Indian Pharma Companies Retail consolidation has affected margins of Indian Pharma
companies
− As of June 30, 2015, 17 deals had been either announced or
completed in retail pharmacy and pharmacy benefit
management (PBM) businesses
− India generics players have been significantly affected due to
this continued consolidation:
− Sun Pharmaceuticals, recorded 13% Y-o-Y growth in US
sales during July–September 2014, while it had witnessed
a whopping 95% sales growth in the US market in the
corresponding period in 2013
“I think this (2014) has been one of the most brutal years of
price erosion, as channel consolidation has been heavy in
the US.”- Abhijit Mukherjee, COO, Dr. Reddy’s Laboratories
(November 2014)
Drug Exports to US which accounts for almost 25% of the
country’s cumulative drug exports, are struggling with
decreased product approvals, increased audit inspections
and resultant import alerts from USFDA
7 9
21
32
2011 2012 2013 Mar-14
Indian Players are increasingly exploring non US markets to diversify
New Target Geographies include Brazil,
Spain, Greece, Russia, Mexico, Japan,
Venezuela
European markets have been looked at
to counterbalance the heavy reliance
on the US market for export of API’s
and niche formulations
With its healthcare reforms aimed to
reduce healthcare budgets and generic
friendly policies adopted by the
Japanese government, the market is
gradually opening up to generic
manufacturers
©2016 Deloitte Touche Tohmatsu India LLP 72
• Context – Why is the growth in Indo-US trade in Life Science sector
important?
• Current strength of bi-lateral trade – What has happened so far?
• Evolving trends – What’s changing and what are the opportunities and
challenges?
• The acceleration agenda – Road ahead for each of the stakeholders
Agenda
©2016 Deloitte Touche Tohmatsu India LLP 73
Stakeholder engagement will be critical to drive Indian
presence in the global market especially in the USA
©2016 Deloitte Touche Tohmatsu India LLP 74
For ‘Make in India’ to realize its vision and objective in the healthcare sector, it is imperative for all stakeholders to
step up and make coordinated and concerted efforts in promoting indigenous manufacturing
Government
Role as a policymaker and enabler of
manufacturing ecosystem
Pharmaceutical players
Domestic and MNC players operating in India
(with/without manufacturing)
Other stakeholders in the ecosystem
Academia, research institutions, private equity
players, funding institutions
Healthcare providers and insurers
Hospitals, diagnostic set-ups and health
insurers
• Financial incentives (Tax sops, R&D
sops, duty structure reforms)
• Non Financial incentives (SEZs)
• Expenditure (skill development)
• Policy reforms (ease of doing business)
• Vastly improve their plant inspection
regimen
• Undertake conducive initiatives
(awareness and market building
initiatives)
• Collaboration (Innovation in entire
supply chain lifetime)
• Partnerships (share savings of system to
all stakeholders)
• Collaboration (Innovation in entire
supply chain lifetime)
• Generate Awareness
• Product segment specific strategies
• Collaboration (Strategy to tap domestic
demand)
• Innovation and compliant
Manufacturing locations
• Focus on adhering to global standards
of manufacturing
Boosting exports from India
Determining certain imperatives and developing
constructive initiatives will further reinforce confidence in
Indian exports
• Reinforcing compliance by the industry to keep up
with evolving US regulations concerning quality is
critical to drive significant competitive advantage
• Indian regulators can consider developing a
structured plant inspection regimen, tighten
framework based on international standards to ensure
quality, safety & performance
• Encouraging “Quality Culture” both across API and
formulation manufacturers will help combat
competition
• Indian manufacturers should focus on customers
that want quality and service; high-margin, low-
volume APIs, which are mostly knowledge intensive
will be an important play
Policy/Regulatory changes Quality and Service
• As complex generics market (50% of the US generics) will ride the next wave of growth for Indian exports to the
US, the segment requires big investments towards research and development (R&D) along with a quick drug
approval process to allow companies to unlock the potential in this niche segment
• Assistance to manufacturers to backward integrate into key intermediates that are currently bought from China
will make a significant impact
Funds/Investments
Indian manufacturers need to focus on differentiators in order to thrive
©2016 Deloitte Touche Tohmatsu India LLP 75
Boosting exports from India
Going forward, US MNCs need to view India differently
Driving meaningful growth through exports will require dedicated investment, and change approach towards India for US players
• Shift to therapeutic and
stronger science-based
offerings with extensions
under master brand
• Explore newer areas like
geriatrics, phytomedicines,
sports medicine and
nutraceuticals that are
gaining impetus
• Tap emerging nascent
category (condition-specific
supplements) e.g. diabetic
nutrition, heart health
through therapeutic products
• Set clear and bold
aspirations for trade with
India
• Commit to products that are
customized for India with a
price advantage without
compromising quality
• Develop and maintain
relationships with local
stakeholders
• Achieve premium
positioning with sufficient
Indian context, localize
operations to showcase
commitment
• Differential pricing as a whole
as well as within segments in
India for patented drugs will
maximize social benefits
• Growing customers are ready
to pay a premium price for
differentiated treatments and
increased benefits
• “Allowing and even
encouraging price
discrimination is good
global health policy. It
encourages innovation and
lessens global disparities”
- David E. Williams is President
of the Health Business Group
• Actively engage with doctors
giving them access to cutting
edge thinking and
thoughtware in emerging
areas of medicine
Remodelling
the Product
Pipeline
Viewing India
as a “Strategic
Market”
Developing
the value
pricing model
Further
engaging with
doctors
©2016 Deloitte Touche Tohmatsu India LLP 76
Boosting exports from India
©2016 Deloitte Touche Tohmatsu India LLP 77
IACC Conclave: Vision 2020
Increasing US India Bilateral Trade to $500 Billion
Sector Focus: Aerospace & Defence (A&D)
India – US trade in Aerospace & Defence: Renewed
initiative, cautious optimism
• Context – Why is the growth in Indo-US trade in Aerospace & Defence (A&D) sector important?
− India with the 3rd largest armed force imports 60% of it’s A&D requirement and is one of the largest weapons
importers with 14% share
− Indian A&D spend estimated at USD245bn over the next 7-8 years with about 38% towards capital expenditure
− Imperative for India to modernize and upgrade equipment & weapon systems considering security challenges
− Defence is one of the 25 sectors identified for the ‘Make in India’ initiative and related modifications in the Defence
Procurement Procedure (DPP)
− Imperative for global A&D players to leverage the India market given the other challenges it faces - pipeline,
increasing costs, sluggish market growth, IPR, etc.
• Current strength of bi-lateral trade – What has happened so far?
− US is the second largest supplier to India’s A&D requirement; while Russia continues to remain the primary A&D
supplier to India. Imports from the US in Jan-Oct 2015 dropped by 52.3% from USD1.915bn for the same period in the
previous year
− Signing of the Joint Declaration on Defence Co-operation in 2014, 2015 Framework for India-US Defence Relationship
and Renewal of the Defence Technology and Trade Initiative (DTTI) for another 10 years from 2015
− Four pathfinder projects under DTTI: 1) Raven (UAVs), 2) Roll-on Roll-off intelligence gathering reconnaissance
modules for C-130J Super Hercules Aircraft, 3) Mobile electric hybrid power sources and 4) Uniform integrated
protection ensemble increment-2
− Joint strategic vision for the APAC and Indian Ocean Region
− India’s defence spend will largely be focused on aircraft and aero-engines amounting to ~ USD8bn where the US has
significant strength
©2016 Deloitte Touche Tohmatsu India LLP 78
A&D sector could play an important role in achieving
‘Indo-US trade: Mission 500 billion USD’ (1/2)The global defence market grew at 2.5% with India as second largest weapon importer at
14% market share
-5%
13%
-5%
21%
0%
6% 6%
-3% -6%
8%4% 2.5%
-15%
-5%
5%
15%
25%
US
A
Chin
a
Russia
Sa
ud
i A
rab
ia
Fra
nce
UK
India
Germ
an
y
Jap
an
So
uth
Ko
rea
Glo
ba
l A
ve
rage
Glo
ba
l M
ed
ian
Growth in Defence spend in top 10 countries
FY10 FY11 FY12 FY13 FY14
20.9 20.2 22.7 24.4 24.7
15.2 12.814.3 16.3 15.4
42.1%
38.8%38.7%
40.0% 38.3%
36%
37%
38%
39%
40%
41%
42%
43%
0
10
20
30
40
50
2011-12 2012-13 2013-14 2014-15 2015-16 E
Defense expenditure and substantial proportion of capital expenditure
Revenue Expenditure (USD billion) Capital Expenditure (USD billion) Capital expenditure/Total Expenditure
• India is ranked 9th
globally in military
spending and imports
60% of its requirement
• CAPEX has risen to
~40% of total
expenditure indicating
an upward trend in
capital acquisition,
however, high imports of
defence equipment are
due to low levels of
technology ‘know – how’
primarily as a
consequence of bilateral
measures
• Capabilities of domestic
private defence
manufacturers are still in
the nascent stage due to
low levels of technology
‘know-how’ as the earlier
DPPs favoured DPSUs
for acquiring projectsSource: SIPRI Report, News India, D&B Report, Ministry of Defence Annual Report 2014,
©2016 Deloitte Touche Tohmatsu India LLP 79
A&D sector could play an important role in achieving
‘Indo-US trade: Mission 500 billion USD’ (2/2)Indian A&D capex spend is estimated at USD236bn from FY15 to FY25
• Committed orders from
previous deals account
for a majority of the
capital acquisition
budget ~ 93% for FY
2014-15
• Actual capital acquisition
budget available for new
schemes for FY 2014-15
is ~ USD 816 million
• In FY2014-15, of the
~USD 2.09bn of un-
spend capital budget,
~1bn was spent on
revenue account owing
to fuel hikes, rise in
salary expenses, etc
Source: SIPRI Report, Citi Research, Newspaper reports, MoD, http://www.idsa.in/, http://www.defproac.com/?p=2079 USD/INR: 0.015; Euro/INR: 0.014
0
500
1000
1500
2000
2500
0
50
100
150
200
250
300
350
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16(B
E)
FY
17
FY
18
FY
19
FY
20
FY
21
FY
22
FY
23
FY
24
FY
25
Defe
nce
Cap
ex
Nom
ina
l G
DP
(‘0
00
)
Defence Capex to Nominal GDP (FY08 to FY25E)
Nominal GDP (INR bn) Defense Capex (INR bn)
814
8000
1970
3000
6000
9000
Artillery Guns 3rd gen anti-tank missiles
Helicopters
Army Requirements* (in units)
• Up gradation of tanks and BMP
armoured vehicles
• Procurement of assault rifles, bullet
proof jackets
• Night Vision Devices for infantry
mechanized forces
6 5
46 45
0
20
40
60
Sco
rpe
ne
Sub
ma
rin
es
Nu
ke
Sub
ma
rin
es
Wa
rsh
ips
MiG
-29K
Navy Requirements* (in units)
• 246 nos of Surface to Air 'Barak 1
missiles
• 12 nos of patrol aircrafts
• Surveillance radars
22
15
6
36
05
10152025303540
Apa
che
he
licop
ter
Ch
inoo
kH
elic
op
ter
Mid
-air
refu
elin
gair
cra
ft
Ra
fale
Je
ts
Air force Requirements* (in units)
• 6 nos of C-130 J Super Hercules
• 6 nos of C17 Globemaster III
• Air force radar system
©2016 Deloitte Touche Tohmatsu India LLP 80
India – US trade in Aerospace & Defence: Opportunities
abound
• Evolving trends – What’s changing and what are the opportunities and challenges?
− DTTI initiating the transition of the A&D sector from a ‘procurement / buyer-seller model’ to governmental dialogue on co-
operative R&D and eventually moving to strategic partnerships
− Four pathfinder projects already identified for joint manufacturing and agreement to explore more high-end technologies in
the context of air-craft carriers (electro-magnetic aircraft launch systems) and jet engines (Tejas LCA)
− India a highly disintegrated supply chain, while there are a large number of Tier III suppliers in the SME space, there is
significant opportunity for development of OEM JVs, Tier I and II suppliers to meet the ‘make in India’ initiative
− Defence products list for industrial licensing, has been articulated, wherein large numbers of parts/components,
castings/forgings etc. have been excluded from the purview of industrial licensing
− A comprehensive security manual indicating the security architecture to be followed by various industries has been put in
public domain
− For the first time, a Defence export strategy has been formulated and put in public domain, outlining specific initiatives to be
taken by Government of India for encouraging exports
− Move to award A&D projects on competitive bid basis open to both the private sector and the Defence Public Sector Units
(DPSUs)
− Key hurdles for growth in the A&D sector – India’s FDI cap at 49% under automatic route, 40% offset requirements for
Indigenously Designed, Developed and Manufactured (IDDM), delay in release of modified DPP, IP and technology transfer
issues, Indian suppliers and vendors to the A&D sector are still in a nascent stage of development, integration into the OEM
global supply chain, slow decision making process – disjoint between end-users and decision makers, ease of doing business
in India and strategic inter-governmental issues
©2016 Deloitte Touche Tohmatsu India LLP 81
The acceleration agenda: Road ahead for each of the
stakeholders
• Indian Government
− Has a clear vision for boosting indigenous participation in the A&D sector and have taken specific steps in that direction
− Included Defence under the Make in India initiative
− Revamping of the DPP including offset requirements and adding further transparency to the process
− Planned A&D spend ~ USD245bn in the next 7-8 years
− Policy changes to facilitate collaboration in the Indian A&D space including increasing the value for 30% offset threshold from INR300
crore to INR2000 crore and relaxation of the 49% FDI cap subject to Cabinet Committee on Security approval in specific instances of
state-of-the art technologies
− Single largest Indian ownership of 51% and lock-in period of 3 years on equity transfer removed for FDI in Defence
− Speed up decision making process including involvement of end-users in selection process and implementing projects in a timely manner
− Provide ‘Infrastructure’ status to the A&D Industry
• Indian Industry
− Development of industry body/bodies to represent to liaise with Indian government as well as external agencies – to be part of the A&D
sector Global Supply Chain
− Develop capabilities and investment preparedness to exploit the emerging opportunity with a long term view of the sector
• US Government
− Relaxation in the Policy framework for technology and knowledge transfer in the A&D sector
− Review regional strategic positioning
• US Industry
− Shift in geo-political outlook to exploit the emerging opportunity with a long term view of the sector
− Global MNCs need to provide access to newer technology and know-how
− Global OEMs to develop Indian supplier and vendor base for inclusion in their global supply chains
©2016 Deloitte Touche Tohmatsu India LLP 82
©2016 Deloitte Touche Tohmatsu India LLP 83
IACC Conclave: Vision 2020
Increasing US India Bilateral Trade to $500 Billion
Sector Focus: E-Commerce & Retail
• The Opportunity in Indian and US Retail markets
− Current Trade
− Indian and US Retail Markets
− Indian Consumption Story
− eCommerce – What role can it play
• Regulations, Challenges and Opportunities
− Regulations and the changes
− How Indian and US Companies have partnered
− Key Challenges
− Growth Drivers
Contents
©2016 Deloitte Touche Tohmatsu India LLP 84
The Opportunity in Indian
and US Retail markets
©2016 Deloitte Touche Tohmatsu India LLP 85
Overview
Indo – US Bilateral Trade
• Bilateral trade in
merchandise goods has
increased from US $5.6
Billion in 1990 to
US $66.9 Billion in
2014. The growth
recorded during this
period was 1,095%.
• The India US
relationships are also
characterized by the
active interest of US
institutional investors
and Private Equity firms
investing substantially in
India.Source: US Department of Commerce, US Census Bureau
Bilateral Trade - Overview
India exports to US
21% 17% 7% 13%Precious Stones
& Metals
Textiles Mineral Fuel & Oil Pharmaceutical
Products
US exports to India
31% 10% 7% 6%Precious Stones
& Metals
Machinery Aircraft and
Space parts
Electrical
machinery
©2016 Deloitte Touche Tohmatsu India LLP 86
Opportunities in the Indian and US Retail Markets
• Both the Indian and US markets are characterized by large market size,
coupled with low economic risks and high growth potential across segments.
• It is estimated that India will continue to see significant growth in the overall
Retail Market and grow ~75% to reach $ 1,077 billion in 2020 from the
present size of $622bn. An important aspect of this growth is that the
Apparel, Footwear, Jewelry, Electronics, Pharmacy, Home Products and
other discretion segments are expected to grow much faster as compared to
the overall market. One of the key reasons for this growth in discretionary
spend would be the expected rise in per-capita income from $1,702 in 2015
to $2,302 in 2020.
• On the other hand, there is a large US market (estimated at $ 5 trillion) which
is available to Indian brands and retailers.
• These attributes of the Indian and US markets create huge opportunities for
cross border sales as:
1. Indian consumers look to buy popular US brands
2. US consumers look to buy efficiently priced products, where Indian brands
can be good optionsSource: Deloitte Secondary Research; Morgan Stanley India Report Feb.2015
©2016 Deloitte Touche Tohmatsu India LLP 87
The Indian Retail market is poised for steep growth
India Retail - $1 Trillion Market by 2020 Apparel is the Largest Non-Food Segment*
2005 2010 2015 E 2020 P
Traditional Trade Modern Trade
208320
622
1,077
Avg. CAGR: 12.9%
$ US BillionAvg. CAGR: 14.7%
25.4%
2.6%
15.7%
8.0%7.5%
10.8%
15.9%
5.4%
8.7%Clothing & Apparel
Footwear
Jewellery
Home & Interiors
Entertainment & Gaming
Consumer Electronics
Mobile & Telecome
Beauty
Others
1) Non-Food segment represents 34% of total Indian Retail market in 2013.
2) Generation I: Individuals who have grown up in the liberalized economy (<14 years of age when economy started opening)
Source: Deloitte Secondary Research; Morgan Stanley India Report Feb.2015
Key Drivers of Rapid Market Growth
Income Growth
3XFrom 2010 to 2020
Urbanization
40%Population in cities by 2020
Nuclearization
200 millionNuclear households
Behavior Shifts
75%Generation 1* by 2020
©2016 Deloitte Touche Tohmatsu India LLP 88
Demand drivers in India
Trends in Retail Sector
Rapid urbanization has moved consumers toward cities giving retailers a ready base of consumers. An increase in
nuclear family systems also means less time and more disposable income, making retail stores a favorable location for
purchases.
Shift in urbanization
Emergence of concepts such as quick and easy loans, equated monthly installments (EMI), and loans through credit
cards have made Indian consumers afford expensive products.
Emergence of easy money
concepts
High brand consciousness among the youth, with 60% of India’s population under 30 years of age. The per capita
income in India has doubled between 2007 and 2012, which points to a higher consumer class.
Brand conscious youth
population
Hefty pay packets, dual income, increase in nuclear families along with increasing working women population are other
factors contributing to the retail sector’s prosperity.
Increase in customer class
With growth in the E-commerce industry, online retail is estimated to reach US$70 billion by 2020 from USD 13.6 billion
in 2014.Growth in e-Commerce
E-retail growth is not just a metro phenomenon; in fact, growth is stronger is Tier II/ III cities where there is a sizeable
and growing middle class with low access to organized retail.Growth of Tier II/III cities
Medium-term growth to be led by e-retail – estimated to grow at 80%+ and may become nearly a third of the e-
commerce market by 2016.eRetail growth
©2016 Deloitte Touche Tohmatsu India LLP 89
eCommerce – Enabler for Cross-Border Retail
• eCommerce could be a huge boon to trade between US and India as
it allows for companies in one country to piggy-back on the wide
reach of the eCommerce portals in the other country and make their
goods available to a much wider customer base. This drastically
reduces the cost of market entry by eliminating problems of
distributed inventory build-ups, and tie-ups with multiple retailers.
• In USA the e-commerce sector is expected to grow to $ 492bn in
2018 while the Indian eCommerce sector is expected to reach
$100 bn in 2020. These large eCommerce markets present
significant opportunities for Indian and US brands to sell products in
the other country respectively. Retail categories which will likely see
strong traction in cross border trade are Apparel and Footwear,
Mobility Products, Food products, etc
• Indian Digital First Brands across above categories may be very well
positioned to be early movers to the US Market given their
preference to work through eCommerce channels and effective price
points.
On the other hand, Indian consumers may be more accepting of
popular brands from the US like Apple, Carter’s, Disney, etc.
• Given that the markets in both countries for these products may
initially be small and distributed inefficiently, eCommerce could be a
good retail strategy for such products in both countries
©2016 Deloitte Touche Tohmatsu India LLP 90
2 Sides of the same Coin?
eCommerce and Traditional Retail
• Current market estimates that eCommerce makes up 1-2% of the
total retail spend in India. However, we estimate that the share of
eCommerce in discretion driven segments such as apparel,
footwear, jewelry, consumer electronics is significantly higher.
• We believe that both these forms of retail will slowly converge to
adopt the best of both forms of retail – We expect traditional retail
chains to have higher technology adoption and have digital
presence. Similarly, we believe that eCommerce players will seek to
move closer to potential customers and set-up experience stores.
• Various sub-segments of retail such as Apparel, Footwear, Furniture,
Electronics, etc are getting significant traction through the
eCommerce channel – We expect that eCommerce as a channel for
shopping will continue to get more traction from Indian consumers
and traditional retailers will enable their systems and processes for
eCommerce.
• In the future, we expect that best of technology and business
practices from eCommerce and Traditional retail will lead to a
more efficient retail ecosystem in India and further aide the
growth of the Retail sector.
©2016 Deloitte Touche Tohmatsu India LLP 91
Convergence
eCommerce and Traditional Retail
• Given the rapid growth of Indian eCommerce, we
expect to see cooperation between physical (brick and
mortars) and online retailers in way of an omni
channel supply chains. Benefits of which will include:
− Omni-channel offering that assists the end-to-end
purchasing experience
− Direct contact made with customers (in the case of
physical stores)
− Greater brand recognition.
− Wider range of consumers that can be reached through
tech-enabled channels
O2OOnline-to-Offline
Commerce
Market Dynamics
Movement towards O2O Commerce
©2016 Deloitte Touche Tohmatsu India LLP 92
2 Sides of the same Coin?
Cross Border Retail Interests
• Overall, We expect 3 distinct channels through which there
trade and investment between India and the US will flourish:
1. Venture Capital and Private equity Investment – With
India’s fast growing eCommerce and retail markets, US
based VC and PE investors have invested significant
capital in India. We expect this to continue in the future.
2. Operating investments by US Corporations into their
Indian arms – Various US retail chains and consumer
brands have started operations in India. The market entry
and expansion is most often funded by capital from the
parent.
3. Trade carried out by brands and retailers – There has
been relatively low trade in branded products. We expect
high-quality, emerging brands from India to create a
market for themselves in the US. A possible entry
strategy for Indian brands in the US could be to partner
with large offline retail chains and online portals.
PE and VC funds
Retailers
Emerging Brands
©2016 Deloitte Touche Tohmatsu India LLP 93
Regulations, Challenges
and Opportunities
©2016 Deloitte Touche Tohmatsu India LLP 94
Source: Deloitte secondary research
1997-2005 2006-2009 2010-2011 2012-2014 2015-
Re
tail
Bu
sin
es
sR
eg
ula
tio
ns C
han
ge
FDI in Cash and
Carry permitted with
Government
approval
• Single Brand: 51%
FDI
• Cash & Carry
wholesale trading:
100% FDI
Cash and Carry
should not supply
> 25% of its
turnover to group
companies
Single
Brand: 100%
FDI allowed
with stringent
conditions
• Single Brand:
Relaxed
conditions
• Multi Brand:
51% FDI allowed
Single Brand:
newly-eased FDI
Norms along with
relaxed
ecommerce
conditions in
Nov.2015
Conceptualization Expansion Consolidation Resurgence Explosion
• Pure play retailers,
realizing the potential
start to test the
waters
• Limited players
experimenting with
new formats
• Most retailer are in
the apparel segment.
• Entry of international
players in single
brand and cash and
carry format
• Growth across
formats and
categories
• Large scale
consolidation and stiff
competition
• Limited new entrants
• Slow down in new
store openings
• Cost optimization and
operational efficiency
• More aggression
from international
players
• Roll out at fast pace
• Focus on supply
chain, sourcing etc.;
working capital
efficiency
• “The biggest
economic push
India has seen
ever since the
liberalization
policies of 1991
under Congress
Government”
Single Brand Retail: Products should be sold under the same brand internationally; Covers only products which are branded during manufacturing;
Involving FDI beyond 51% would preferably need to source 30% of products from small and medium enterprises, village and cottage industries
Multi Brand Retail: Outlets may be set-up in cities with population of more than 1 million; Minimum investment of USD 100 million to be infused by the
foreign investor with 50% investment in back end infrastructure over 3 years; Minimum sourcing of 30% of manufactured/ processed products from Small
and Medium scale industries
Regulations have played a significant role in the
development of Indian Retail Market
©2016 Deloitte Touche Tohmatsu India LLP 95
2015 Regulation Changes on Single Brand Retail
Old Regulations New Regulations Business Implications
FDI % for
Stores100% FDI 100% FDI N.A.
Sourcing
Conditions
Need to source 30% of products
from small and medium
enterprises, village and cottage
industries
Sourcing norms relaxed to “state-
of-the-art” and “cutting-edge
technology” Single Brand
Retailers
• More flexibility on supply
chain management
• More assortment
• Better cost control
EcommerceBrand owned eCommerce sites
not allowed
Brand owned eCommerce
allowed, as long as the retailers
have a brick-and-mortar outlet in
India
• Immediate availability and
access
• Direct consumer engagement
• More control on
merchandises, service and
margins
• Omni-channel integration
Source: Trak.In news, http://trak.in/tags/business/2015/11/11/fdi-norms-15-sectors-eased-single-brand-retail-ecommerce/
Recent easing of FDI Norms on Single-brand Retail is
expected to be a significant boost to international players
and will ease ecommerce ownership
©2016 Deloitte Touche Tohmatsu India LLP 96
Profitability is a long standing challenge to Indian Retail Business
Note: Cost as % sales and use global average as Index 100 (food and grocery retailers as example)
Source: Morgan Stanley India Report Feb.2015; Deloitte Research
Inadequate Logistics Infrastructure Lower Sales Through per sq. ft.
Higher Operating Cost* Labor & Other Issues
International Retailers Indian Retailers
$ 120-180
$ 22-38
Rental Cost
Supply Chain /
Logistics Cost
100
5.30%
3.20%
1.50%
Brazil China India
Highways & Motorways %
Indian Retailers Global Retailers
200
200
100
Cost Index ComparisonWeak
Pricing &
Promotion
ExecutionBroadband
Speeds
Little Omni-
channel
experience
High Attrition
Rate
Electronic
Payments
Nevertheless, International players have to address
unique infrastructure challenges before capitalizing those
ample opportunities
©2016 Deloitte Touche Tohmatsu India LLP 97
• Gap (Franchise, 4)
• H&M (Own, 2)
• Children’s Place (Franchise, 4)
Top
FranchiseesDescription
Partners Portfolio(not exhaustive)
Tata Group • A lifestyle retail chain and Star India Bazaar, a hypermarket with a large
assortment of products at the lowest prices
• Sisley, Benneton, Starbucks, Zara
The Future
Group
• Launched first hypermarket Big Bazaar in India in 2001
• 16 million square feet of retail space, over 1000 stores across 73 cities
• Disney, Staples, Apollo Design,
Goldmohur Apparel, Clarks
Reliance
Brands
• A $70B conglomerate, Reliance Retail is India’s largest retailer, with
1466 stores in a range of specialty and grocery formats
• Marks & Spencer, Diesel, Timberland,
Dolce & Gabbana, Kenneth Cole, Steve
Madden, Brooks Brothers
Arvind Brands
Ltd
• Founded in 1931, Arvind was initially one of India's leading super-fine
fabric manufacturers
• Today it is a $680M company that markets JV and own brands across
multiple channels
• VF Brands , US Polo, Tommy Hilfiger,
Debenhams, GAP
K Raheja
Group
• India’s first departmental store in 2001
• Over 2.05 million square feet area across 55 stores in 24 cities.
• Nuance Group, Home Stop, MotherCare,
Estee Lauder Group
International Apparels & footwear Retailers Who Already Entered India
1996 20152006 2008 20102004
• Benetton (Own, 350)
• Marks & Spencer (Franchise to JV, 52)
• Levis (Franchisee, 400)
• Tommy Hilfiger (JV, 75)
• Nike (JV, 350)
• Mother Care (Franchise & JV, 70)
• Jimmy Choo (Franchise, 5)
• Next (Franchise, 80)
• Zara (JV, 17)
• Clarks (JV, 22)
India Leading Retail Franchisees
(Brand, Entry Method, and Latest Store Numbers)
A number of International retailers have entered India
through collaboration with local partners
©2016 Deloitte Touche Tohmatsu India LLP 98
Real estate prices in some cities in India are amongst the highest in
the world. The lease or rent of property is one of the major areas of
expenditure; a high lease rental reduces the project’s profitability. The
sector also faces high stamp duties on transfer of property, which
varies from state to state.
Real Estate
constraints
Traditional retail - well entrenched in India over century is a low cost
structure, mostly owner operated, with negligible real estate and labor
costs. Tax and other charges are also not significant. Consumer
familiarity that runs from generation to generation is a major
advantage for the traditional retail sector.
Strong traditional
retail
Availability of skilled manpower is a major challenge for existing
players as well as for new entrants in the market.
Lack of skilled
manpower
Low penetration of credit cards (<2%), debit cards penetration is
higher (31%) but primarily used as ATM cards, low penetration of
internet banking.`
Low penetration of
credit cards
Market
Dynamics
Combination of
Market Dynamics
and regulations
Key challenges faced by Retailers in India (1/2)
©2016 Deloitte Touche Tohmatsu India LLP 99
Key challenges faced by Retailers in India (2/2)
Entering retail sector in India requires several clearances broadly
regulated by the Foreign Investment Promotion Board (FIPB) and
entails issuance of close to 27 domestic licenses by compliance
authorities.
FIPB clearance
Compliance with Foreign Direct Investments (FDI) guidelines is
needed for Multi Brand Retail (MBR) and Single Brand Retail (SBR).
FDI compliance
Indirect taxation structure is complex in India with varying tax rates,
multiplicity of taxes, and multiple tax enforcement authorities.Indirect taxation
Regulations
©2016 Deloitte Touche Tohmatsu India LLP 100
Significant growth drivers for the Retail Sector
GSTAdoption of Digital
PaymentsImproved Internet
Connectivity
Better Infrastructure
Adoption of efficient
business models to
eliminate middle-men
Adoption of Technology
©2016 Deloitte Touche Tohmatsu India LLP 101
©2016 Deloitte Touche Tohmatsu India LLP 102
IACC Conclave: Vision 2020
Increasing US India Bilateral Trade to $500 Billion
Sector Focus: Smart Cities
Introduction and Background
In the last two decades, cities around the world have made remarkable progress in achieving need based spatial growth, environmental and
social sustainability as well as widening up economic horizon through promoting platforms for economic development and creation of diversified
job opportunities.
This has led to a paradigm shift in city living standards leading sizable share of world population consistently migrating to cities, thereby playing a
pivotal role in global urban transformation. The UN report World Urbanisation Prospects elucidates this position:
• over 700 million people are estimated to be added to urban population over the next 10 years
• It is estimated that every minute 30 country dwellers move permanently to a city in India. This is expected to add another 300 million people
in urban population to the existing 300 million dwelling in the next 15-20 years
Increasing urbanization growth has brought forward a gamut of emerging risks and threats which are envisaged to intensify in the years to come.
This growth has been accompanied by increased pressure on existing municipal infrastructure like water supply & distribution, sewerage,
transportation, energy consumption and other urban amenities. It also has a far reaching impact on existing
i. urban institutional setup relating to activities pertaining to governance, planning and city management
ii. social infrastructure relating to components that enable development of human and social capital covering education, healthcare,
entertainment, etc.
iii. economic infrastructure that pertains to developing requisite infrastructure for generating employment opportunities and attracting
investments
It is imperative that evolution of the city from a traditional to a “smart” one is need of the hour and
calls for overcoming the shortcomings leveraging “smart” solutions which are efficient,
sustainable, pro-developmental, citizen centric, accountable, transparent and welfare driven.
©2016 Deloitte Touche Tohmatsu India LLP 103
Smart Cities: Global Context
• Globally various cities have developed to achieve various stages of “smartness” while many cities are still in the process of implementing
smart functionalities within their operations. Accordingly cities like New York, London, Berlin, Hamburg, Amsterdam, Copenhagen, Barcelona,
and Vienna have incorporated smart functionalities in their administrative operation and service delivery mechanism.
• There have also been a number of instances wherein entirely new cities have been planned and implemented as smart cities. Irrespective of
the level of preparedness observed in different parts of the world, overarching mandate for achieving the same has been governed by the
same underlying principle advocated though various definitions proposed. Some of them have been highlighted below.
“Smart Cities have been characterized and defined by a
number of factors including sustainability, economic
development and a high quality of life. These factors
can be achieved through infrastructure (physical
capital), human capital, social capital and/or Information
and Communication Technologies (ICT) infrastructure” –
European Commission
“A city that monitors and integrates conditions of all of its critical infrastructures – including
roads, bridges, tunnels, rails, subways, airports, seaports, communications, water, power, even
major buildings – can better optimize its resources, plan its preventive maintenance activities,
and monitor security aspects while maximizing services to its citizens.” - The U.S. Office of
Scientific and Technical Information
“The Smart City is a process, or series of steps, by which cities
become more “livable” and resilient and, hence, s able to
respond quicker to new challenges. Thus, a Smart City should
enable every citizen to engage with all the services on offer,
public as well as private, in a way best suited to his or her
needs” – Department of Business Innovation & Skills, UK
©2016 Deloitte Touche Tohmatsu India LLP 104
Smart Cities: An overview
All the ideas encapsulate the tangible
and intangible components of a city
to create an informed, efficient and
holistic system.
The framework comprising the key
components in a Smart City is
illustrated alongside.
It is pertinent to note here that
smartness of a city is not about
technology, but rather about how
technology is used, as part of a wider
approach to help the city function
effectively, both in its individual
systems and as a whole leading to an
improved quality of life for its citizens.
The role of technology in smart cities
is a tool to support this collaboration,
to help gather and make available
valuable information and evidence,
and to automate some of the
underlying processes.
©2016 Deloitte Touche Tohmatsu India LLP 105
Smart City Mission of India – Key Highlights
Key features
• Pooling of recourses from different urban development programs (like AMRUT and Pradhan Mantri Awas Yojana (Housing for
All)
• Participative smart city plan comprising (i) Retrofitting, (ii) Redevelopment, (iii) Green-field and (iv) Pan-city
• Key indicators to be monitored – time taken to provide building plan approval, increase in property tax revenue, cost
management, average commute time, improved attendance, access to documents, dashboards for key officials, etc.
• Selected cities will implement the Mission through a Special Purpose Vehicle headed by a Chief Executive Officer where the
mission will be monitored at National, State and City Levels.
• Funding available under this mission shall be in the form of a challenge fund where all cities and towns seeking to participate in
this mission shall be profiled based on specific parameters that has a bearing on their ability to address issues of governance
reforms, resource mobilization, and execution of project among others.
Source: SIPRI Report, News India, D&B Report, Ministry of Defence Annual
Report 2014,
Total 100 cities across the country, of which 20 cities to be
selected in the first year
Smart City Mission launched by Honorable Prime Minister in June 2015 The objective is to promote cities that provide core infrastructure and give a
decent quality of life to its citizens, a clean and sustainable environment and
application of 'Smart' Solutions
©2016 Deloitte Touche Tohmatsu India LLP 106
Creating Smart Cities - Special Purpose Vehicle
• As per the plans of Ministry of Urban Development (MoUD), Government of India (GoI) a Special Purpose Vehicle (SPV) is envisaged at city
level to implement the projects envisioned in the smart city proposal of the cities.
• GoI believes the SPV will not just be more efficient way to work as compared to traditional project implementation mechanism but will also
unlock numerous opportunities for both state and the private sector.
• The SPV will be a limited company registered under the Companies Act 2013 at the city level which will be headed by a professional CEO
and will have nominees from all three levels – Central Government, State/Union Territory (UT) Government and Urban Local Bodies (ULB) –
on its board. The state/UT and ULB will be the promoters of the SPV.
• The SPV may also consider financial institutions and private sector for taking equity. GoI will provide funds under the Smart City Mission to
the SPV in the form of tied grant. The central government will provide financial support over next five years, Rs. 100 crores per city
©2016 Deloitte Touche Tohmatsu India LLP 107
Special Purpose Vehicle: Role, Opportunities &
Challenges
SPV will have to undertake several progressive steps to transform the existing infrastructure of the city to
turn it into a smart city. SPV will have to immediately take up three key roles – Financing, Tendering and
Vendor Selection, and Monitoring – to overcome challenges internal to SPV.
©2016 Deloitte Touche Tohmatsu India LLP 108
Creating Smart Cities: Financing Mechanism for Special
Purpose Vehicle
• It is estimated that providing the identified services across the smart cities will require an estimated investment of Rs. 7.5 lakh crores over
twenty years which translates into a requirement of Rs. 35,000 crores every year.
• To meet such investment targets, ULBs will have to find innovative and new means. Some of the mechanisms ULBs may explore are
delineated below:
Self-financing
Opportunities:
The state may look at its own coffers to finance the projects before exploring other options.
Challenges:
Municipal revenues do not even form one percent of the national GPD in 2007-08. India is far behind in its own league of nations when
compared to other emerging economies such as Brazil and South Africa
Municipal Bonds
Opportunities:
Such bonds have been in existence since in India in cities such as Bengaluru, Nashik, Madurai and Ahmedabad
In countries like US and China, municipal bonds markets are huge and value around $3.7 trillion and $187 billion respectively. But in India,
issues have only touched Rs. 1353 crores.
CARE, a leading rating agency, states that municipal bonds in India has potential of raising Rs. 1000 crores annually
Municipal bonds in India enjoy tax free status and their interest rates are market linked
Challenges:
SEBI has defined strict guidelines for municipal corporations to be able to raise funds from public through bonds
Most corporations run into credibility wall because they lack credit ratings.
©2016 Deloitte Touche Tohmatsu India LLP 109
Creating Smart Cities: Financing Mechanism for Special
Purpose Vehicle
• It is estimated that providing the identified services across the smart cities will require an estimated investment of Rs. 7.5 lakh crores over
twenty years which translates into a requirement of Rs. 35,000 crores every year.
• To meet such investment targets, ULBs will have to find innovative and new means. Some of the mechanisms ULBs may explore are
delineated below:
User Charges
Opportunities:
For urban areas, GoI is working to develop an automatic indexing of user charges to quality of services and inflation to increase cost
recovery in order to at least cover operation and maintenance charges. This will help creating a framework to mitigate risks not just related
to the inflation but also to cover risk allocation between private and public sectors, performance standards and coverage targets.
The 14th Finance Commission has also recommended that ULBs must enhance their resource base by imposing betterment tax, impact
fees, advertisement tax, tax on newer forms of entertainment, raising ceiling on profession tax
Soft Loans
Opportunities:
MoUD pursuing World Bank for a loan of $500mn from and Asian Development Bank (ADB) for a loan of $ 1B
In June 2015, ADB announced doubling funding to up to $ 5 billion per annum to support India’s urban development.
France has rolled out a loan of 2 billion Euros smart city project in Puducherry, Nagpur and Chandigarh
Japan has offered to finance India's first bullet train, estimated to cost $15 billion, at an interest rate of less than 1%
©2016 Deloitte Touche Tohmatsu India LLP 110
Creating Smart Cities: Financing Mechanism for Special
Purpose Vehicle
• It is estimated that providing the identified services across the smart cities will require an estimated investment of Rs. 7.5 lakh crores over
twenty years which translates into a requirement of Rs. 35,000 crores every year.
• To meet such investment targets, ULBs will have to find innovative and new means. Some of the mechanisms ULBs may explore are
delineated below:
PPP Model
Opportunities:
Mumbai partnered with Itron which is largest manufacturer of metering devices in US to install smart water meter technology and was able
to save 50 percent of water being wasted due to outdated and faulty infrastructure.
As entrepreneurs build new applications for the Internet of Things, there should be no shortage of opportunities for city leaders to create
partnerships and leverage other financing tools outlined by these guides to make the their cities smarter.
Land Monetization and Land Pooling
Opportunities:
The Sabarmati River Front Development Project is an urban regeneration program that envisages the water’s edge as a public asset. The
project is aimed at environmental improvement, social upliftment and urban rejuvenation. Work on the project had started in 1997 after
setting up of the Sabarmati Riverfront Development Corporation Ltd. The project envisions selling 14% of the riverfront area as premium
land for commercial use. Land monetization strategy would raise INR 1200 crore to comfortably cover the investments in the project.
The Bombay Town Planning Act of 1915 was the first legislation to provide the legal framework for the use of land pooling and
reconstitution in India. The Act enabled the use of Town Planning Schemes (TP Schemes) in the erstwhile Bombay Presidency. Close to
70 TP Schemes have been completed in Ahmedabad till today. These TP Schemes serve more than 1.5 million people.
©2016 Deloitte Touche Tohmatsu India LLP 111
Creating Smart Cities – Tendering and Vender Selection
• The planned development in the cities will be through partnership with service providers. Defining baseline compliance requirements, service
level agreements (SLAs), bid management will be the initial set of activities for which SPVs is expected to engage organizations in.
• The SPV is expected to give the required flexibility
in selecting implementation partners having global
expertise and a proven track record in planning
& implementation whose participation can be through
innovative partnership models.
• For the implementation partners, the first step is to conduct process evaluation and understanding the present service delivery
mechanism. Business Process Re-engineering (BPR) may be used to develop achieve efficient processes, deliver improved
customer service and at the same time also help in cost reduction.
• The cities by engaging technology partners can leverage new levels of automation and business intelligence to bring transparency
in the processes.
• Considering the vastness of most projects, an opportunity for citizens will be the need for hiring new people to run the smart
services which will be implemented in the cities. In Maharashtra alone, it is estimated that more than 8.4 lakh jobs will be created
Tendering and Vendor Selection –
• The planned development in the cities will be
through partnership with service providers.
• The SPV is expected to give the required
flexibility in selecting implementation partners
having global expertise and a proven track
record in planning & implementation whose
participation can be through innovative
partnership models.
©2016 Deloitte Touche Tohmatsu India LLP 112
Creating Smart Cities – Importance of Monitoring
Monitoring Mechanism –
• An apex body needs to be created comprising of members from MoUD and related ministries to monitor the mission at national level.
Introduction of BPR into implementation phase of projects will help better availability of data and sophisticated analytical platform can be built
using technology to qualitatively and quantitatively track the project performance.
• A list of city-level indicators could be prepared which could give the best insight into city’s performance. This list of indicators can be
displayed on a digital dashboard which can be directly accessible to the SPV board and even to MoUD. In April 2015, National Air Quality
Index (AQI) was launched for monitoring the quality of air in major urban centres across the country on a real-time basis and enhancing
public awareness for taking mitigative action.
• External agencies like civil organization, business organizations and centre of learning can also be employed to which this data can be
shared and feedback can be taken from sectoral experts.
• The first challenge with establishment of such technology enabled systems is huge investment related to technology implementation for a
successful e-governance and related programs in the city.
• Another challenge is to keep up with the continuously evolving technologies, which is also involves heavy expenditure and demands
upgradation of employee skills at regular intervals.
• A comprehensive mechanism to capture the feedback of citizens needs to be established.
• Customer engagement activities and satisfaction surveys needs to be conducted throughout the city. Another important activity here will be
assessing the progress of the consortium against the defined SLAs in RFP.
©2016 Deloitte Touche Tohmatsu India LLP 113
Other Challenges for SPV
• The three key roles i.e. financing mechanism, tendering and vendor selection, and monitoring will cover the challenges which SPV will face
internally with respect to its core operations.
• There are several other factors which affect SPV externally. These challenges can be classified as Regulatory, Policy, Structural, Capacity
and Political.
Regulatory • Transparency in the process will be compromised considering high level of corruption practices.
Policy • GoI has suggested that municipal corporations should float bonds to raise money, but most local bodies in India
lack credit ratings, which does not allow them to borrow from agencies nor float bonds as per SEBI guidelines.
• The 73rd and 74th Amendment to the Constitution of India does not automatically delegate such functions to the
ULBs. Article 243W of the Constitution specifies that “the Legislature of a State may, by law, endow”
municipalities with such powers and authority as may be necessary to enable them to function as institutions of
self-governance and fulfil the functions listed in the Twelfth Schedule. A ULB’s power is a function of the
provisions of enabling legislations passed by the relevant state and, consequently, the existing ULBs in India
may have powers that vary from state to state. Further, unless sub-delegation by an ULB is authorized by the
relevant state legislation, acts of sub-delegation by the ULB to the SPV could be considered bad in law.
Political • Willingness of state/UT governments and ULBs to delegate their powers to allow smooth functioning of SPVs.
• Local representatives who are democratically elected will have negligible role in creating smart city.
©2016 Deloitte Touche Tohmatsu India LLP 114
Other Challenges for SPV (Cont.)
Structural • Accommodation of private sector while maintaining the delicate balance of power between the central
government, state/UT government and ULBs.
• The mission proposes an overall funding formula of 40:40:20 between the centre, states and local municipal
bodies. However, several civic bodies are not as financially strong to keep up to this ratio of funds.
• The structure of the board does not accord more vote share or weightage to municipal officials or elected
representatives. It remains unclear how these junior level bureaucrats will prevail over more powerful IAS cadre
officers appointed from the state and centre.
• Municipal corporations are administratively and financially weak.
• Devolution of power to ULBs have not been effective in the past.
Capacity • There will be a sudden change in the way employees with SPV will be expected to work to cater to shorten the
turnaround time (TAT) for servicing citizen requests.
• New technology based systems will be put in place which will require greater skill set for which extensive
training programs and skill developments program would be required.
• Changes in organization structure, rewards and recognition, engagement methods with clients and citizens will
be required. The roles and responsibilities of the employees in the SPV will become wider.
©2016 Deloitte Touche Tohmatsu India LLP 115
Private Partner: Opportunities in Smart City
Implementation (1/4)
Successful implementation of Smart
Solutions across 100 smart cities
over the next 5 years will require
large scale involvement of various
stakeholders – central government /
state government/ ULB, private
players, citizens and society – in
terms of financial outlay, technical
capacity and social capacity. While
government departments / agencies
will play a major role in development
of policies and in monitoring and
overseeing the implementation of the
Smart City Plans, it will be the private
players who will provide the majority
of the hardware and software
solutions required for implementing
Smart City solutions. The indicative
role for key stakeholders is illustrated
below.
©2016 Deloitte Touche Tohmatsu India LLP 116
Private Partner: Opportunities in Smart City
Implementation (2/4)
• The participation of private players in the implementation process will enable ULBs/ State Governments to reap multiple benefits across the
project lifecycles. Key benefits to be derived from private sector participation is elaborated below.
− Increased efficiency and service delivery: Participation of private players will ensure delivery of efficient solutions and will ensure quality
service delivery through enactment of contractual obligations for service level outcomes. Additionally an incentive structure built into the
contractual arrangement will promote rapid buildup of delivery capability and quality installation.
− Fostering Innovation: Participation of private players will encourage the use of innovative solutions that can be aligned with the proposed
initiative and ensure innovative project management, solution implementation and service delivery,
− Integrate Planning and Delivery: Presence of technology and hardware partners who can leverage the presence of each other to integrate
the solutions and deliver across various thematic areas / sectors of the smart city will ensure that all the services being delivered are at
the similar level.
• Some of the key areas of opportunity for Private Players to participate in the Smart City Plan Implementation process is elaborated in next
slides
©2016 Deloitte Touche Tohmatsu India LLP 117
Private Partner: Opportunities in Smart City
Implementation (3/4)
Probable Areas of Engagement for Private Players
Development of
DPR and
Selection of
Implementation
Partners
Post selection of Smart Cities by MoUD, each city will develop Detailed Project Reports (DPR) for its Pan City
solution and Area Based Solutions. SPVs in selected cities may appoint a private player to assist in the
development of DPRs along with selection of implementation partners
• Develop the DPR with detailed technical / functional and financial specifications along with break even analysis
• Develop RFP documents with detailed technical and financial specifications for selection of implementation
partners
• Manage the bid process and assist the SPV in shortlisting and selecting suitable partner / partners
Project
Management
Given the nature of the Mission, only 2 RFPs will be floated – one for Pan City Solution development and one for
Area Based Solution Development. In order to enable the implementation of multiple solutions through one tender
selection, a Project Management Consultant will be required to provide the following services:
• Plan time, cost and resources to effectively manage risk during project execution
• Ensure coordination of stakeholders, resources, consortium partners as well as integrate the activities in
accordance with the project management plan
• Ensure quality of deliverables across the lifetime of the projects and beyond
• Monitor and evaluate project outcomes against the project plan and the project performance baseline
Capacity
Building
Implementation of the Smart City Plan will require extensive capacity enhancement at the level of the SPV, ULB,
State Government and across parastatals
• Conduct Training Need Assessment across all involved stakeholders on core technical areas along with project
management requirements
• Develop training modules across subject areas and across levels in the involved organizations / bodies
• Organize training and capacity building sessions on an on-going basis as per detailed training plan
©2016 Deloitte Touche Tohmatsu India LLP 118
Private Partner: Opportunities in Smart City
Implementation (4/4)
Probable Areas of Engagement for Private Players
Providing
Technology
Solutions and
Hardware
Implementation of the Smart City Plan will require technology providers and hardware suppliers to collaborate
and participate in the consortium implementing the Smart City Plan – Pan City and Area Based
• Provide IT / OT (Information Technology/ Operational Technology) deployed per application – SCADA, control
operations, asset management, analytics, condition based prediction, transaction management etc.
• Provide common device types for measurement and control, deployed per application – sensors, intelligent
electronic devices, remote terminals, CCTVs, computers, databases, servers, routers, fault indicators, display
boards etc.
Opportunity available for Technology Providers and Hardware Suppliers across various thematic areas is
elaborated below.
Integrate
System/
Consulting
Support
System integrators / consultants will bring together the component subsystems into a whole and ensure that
those subsystems function together and are compatible with each other and with the requirements of the solution
defined in the DPR. The system integrator will combine the hardware and the software and ensure economic
solutions are delivered.
The Smart City Mission has specified 24 thematic areas for implementing smart solutions - Citizen Participation, Identity and
Culture, Economy and Employment, Education, Health, Mixed Use of Land, Compact Development, Public Open Spaces,
Housing and Inclusiveness, Transport, Walkability, IT Connectivity, ICT Enabled Government Services, Energy Supply, Energy
Source, Water Supply, Water Management, Waste Water Management, Air Quality, Energy Efficiency, Underground Electric
Wiring, Sanitation, Waste Management, Safety and Security. All selected cities will implement smart solutions across most of
these thematic areas, thus opening up opportunities for specialized Technology Providers and Hardware Suppliers.
The key opportunities based on analysis of the Smart City Plans of various cities available to private partners across select
thematic areas has been elaborated in the next few slides. ©2016 Deloitte Touche Tohmatsu India LLP 119
1: ICT Enabled Citizen Service Delivery along with
Municipal Governance Services (1/3)
• Traditional government service delivery and municipal governance is plagued by multiple concerns globally, including:
− Absence of a citizen service portal with computerization/ automation of all citizen facing services along with all back office activities
ensuring single source of data, easy/ minimal data reconciliation and transparency
− Absence of integrated mechanisms of existing service delivery channels – m-governance, e-governance, help desk – in order to offer a
single interface for all government related services
− Lack of multiple remote delivery channels for citizen services and also for maximizing the number of services which can be availed
remotely in order to reduce the time taken for service delivery
− Absence of an inclusive solution that ensures usage by all sections of society
− Absence of a cross platform cutting across government agencies and interaction points
• With the objective of making available government services to citizens over the internet, mobile, service delivery kiosks and phone along with
automating all back office operations for seamless integration of back end and front end processes, cities in India aspiring for smart
infrastructure are aiming for an ICT enabled citizen service delivery system along with municipal governance. The system comprises
Municipal Transaction Processing System, Citizen Interface System, Municipal Monitoring & Evaluation System and Municipal MIS for
delivering citizen / business facing services like Property Tax, Water Charges, Birth & Death Registration, Trade License, User charges,
Building Permission, Grievance Redressal, Common Services, Investment Facilitation etc. – and back office municipal services like
HR/Payroll, Financial Accounts, Fund Management and Material Management. The system provides the following benefits to all involved /
associated stakeholders.
− Single point data entry at the point of transaction / service delivery which in turn updates back-end records and ensures data validity
− Interface with an integrated back end municipal administration solution with modules like financial accounting & management, human
resources and project management
− Enhanced speed of citizen services and reduction in need for physical visits to the ULB office along with real time information availability
©2016 Deloitte Touche Tohmatsu India LLP 120
1: ICT Enabled Citizen Service Delivery along with
Municipal Governance Services (2/3)
• A conceptual framework
for ICT Enabled Citizen
Service Delivery along
with Municipal
Governance Services
with its individual
components and
relevant stakeholders is
elaborated below.
©2016 Deloitte Touche Tohmatsu India LLP 121
1: ICT Enabled Citizen Service Delivery along with
Municipal Governance Services (3/3)
The key stakeholders involved and their roles include:
• Urban Local Body: Operate the ICT Enabled Citizen Service Delivery along with Municipal Governance Services with support from the
private player given the operation and maintenance contract for the system. Additionally the ULB will provide the physical space for locating
the system along with all relevant databases, servers etc. ULB will also be responsible for providing all relevant data required and in
overseeing the implementation of the solution.
• Hardware Supplier: Provide computers, servers, database along with switches/routers for enabling a simplified IP network for transfer of
data. Hardware supplier will also provide the kiosks to be set up for citizen interface and will have a maintenance contract for the hardware
supplied.
• Technology Provider: Provide the citizen service delivery and municipal governance software along with relevant applications for usage on
mobiles and kiosks for the solution to be operational.
• System Integrator / Consultant: Integrate all the solution modules with the hardware and update the data. The consultant will also provide
maintenance and operation support for the solution implemented along with providing capacity building assistance to the ULB staff.
Box 1: Municipal Administration System for Bhopal Municipal Corporation (BMC)
With the vision of making the ULB more efficient, effective and transparent in its operations, improving the financial health, being more responsive
to its citizens’ needs, BMC implemented a comprehensive and fully integrated Municipal Administration System based on SAP-ERP, which would
cover all departments and functions of BMC. Key Objectives of the implementation were:
• Creation of citizen friendly services
• Providing easy access of all municipal services by increasing service points, modes of service, speed and reliability of service.
• Creation of a pro - poor system
• Enhancing transparency and efficiency
• Cost recovery & revenue generation
©2016 Deloitte Touche Tohmatsu India LLP 122
2. Water Management Solution (1/2)
• Traditional water distribution systems suffer from a lack of monitoring mechanism for water pressure, water quality, leakage and overflow
indication along with a mechanism for integrating customer / stakeholder feedback with automated responses.
• A SCADA based water management solution enables collection of water flow / pressure related data at different points of the distribution
network, which can be used to regulate the water flow in the network through valves and pumps. Additionally, if the data collected through a
SCADA system can be integrated with customer / stakeholder feedback collected through other sources like social media, service delivery
call centres, websites, etc. and a set of automated responses can be identified, we achieve a complete smart water solution. The key
stakeholders involved and their roles include:
− Urban Local Body: Maintain the existing water distribution network including the Water Treatment Plant, Water Distribution Pipelines,
Service Reservoirs and Overhead Tanks. Additionally manage and operate the Central Monitoring Unit (to be developed by a private
player) in partnership with a private service provider.
− Hardware Supplier: Provide SCADA detection infrastructure at unit level comprising water quality analyzers like chlorine analyzer, pH
analyzer, turbidity meter etc. along with water level meter, flow meter, pressure sensor, energy monitoring mechanism and an Intelligent
Electronic Device (IED to integrate them all). Hardware supplier will also provide computers, servers, and video wall for the Central
Monitoring Unit along with switches/routers for enabling a simplified IP network for transfer of data
− Technology Provider: Provide the SCADA software for the solution to be operational. Technology provider will also develop an application
for real-time data transfer from citizens to Central Monitoring Unit database on leakage, contamination etc.
− System Integrator / Consultant: Integrate the SCADA software, the SCADA detection infrastructure with the existing water distribution
system and link it to the Central Monitoring Unit. Also integrate the citizen feedback mechanism into this solution in order to be able to
generate automated reports and ensure timely decision making and action
©2016 Deloitte Touche Tohmatsu India LLP 123
2. Water Management Solution (1/2)
A conceptual
framework for SCADA
based water
management with its
individual components
and relevant
stakeholders is
elaborated below.
©2016 Deloitte Touche Tohmatsu India LLP 124
3. Solid Waste Management Solution (1/3)
The traditional solid waste management value chain – waste collection and transportation, waste processing and waste disposal – faces a
multitude of issues / challenges. Some of the key issues affecting the value chain include:
• Inadequate and irregular collection of waste from all municipal areas due to lack of monitoring / tracking by the ULB
• Absence of facility or mechanism for segregation of waste at source
• Presence of the unorganized sector engaged in waste collection (e.g. rag pickers) leading to low quality of waste being transported by ULBs
for processing
• Inadequate facilities for municipal waste processing, using waste to energy techniques for reducing the final product being dumped in open
areas / water bodies
• Use of traditional procedure of burning of waste generates high levels of green house gases
• Engaging in unscientific dumping of waste leads to high levels of pollution – water, air and soil, often causing diseases which are air borne,
water borne and also enter the food cycle through the soil
• Dumping of municipal waste consumes a lot of urban space or space in and around the urban area
Smart Solid Waste Management solutions provide monitored waste collection (planned/scheduled collection of waste, tracking of collection
vehicles, segregation of waste at household level, organized deployment of waste vehicles based on requirement, two way communication
mechanism for improved services), use of modern low cost waste processing equipment requiring minimum basic infrastructure, decentralized
processing techniques, waste to energy conversion and designated scientific landfill site with treatment facilities.
Box 2: Solid Waste Management System in Bruhat Bangalore Mahanagara Palike (BBMP)
BBMP has implemented multiple smart solutions with regards to solid waste management. These include (i) commissioning a GPS/ GPRS based
tracking system for more than 350 vehicles, tracking the route, monitoring distance covered, assisting in route rationalization, etc.; (ii) installing
CCTV cameras at all the processing sites at the entry and exit points to monitor entry-exit of vehicles; (iii) using hand held ticketing system of
vehicles at processing sites enabling collection of data like time of entry of vehicle, vehicle load, etc., and monitoring & analysis of such data; and
(iv) commissioning smart solid waste processing and disposal systems utilizing private sector players, including a 600 MTPD aerobic composting
plant, a 1000 MTPD waste to energy plant and a 1000 MTPD vermi-composting & biomethanization plant.
©2016 Deloitte Touche Tohmatsu India LLP 125
3. Solid Waste Management Solution (2/3)
A conceptual
framework for smart
Solid Waste
Management with its
individual components
and relevant
stakeholders is
elaborated below
©2016 Deloitte Touche Tohmatsu India LLP 126
3. Solid Waste Management Solution (3/3)
The key stakeholders involved and their roles include:
• Urban Local Body: Manage the Central Monitoring Unit with assistance of private partner in tracking and monitoring waste collection and
transportation activities, monitoring processing, recycling and dumping activities, addressing citizen complaints, registering customer data,
managing user charge collection and overseeing the sale of recycled / processed product. The ULB will also be responsible for providing the
land and infrastructure for secondary storage and sorting and composting along with providing land for recycling and disposal in the case of a
PPP.
• Hardware Supplier: Provide bins, collection cart / van/ truck, GPS trackers, sorting / composting / incineration/ gasification machines,
handheld devices for supervisors and surveillance cameras at processing, recycling and disposal sites. Hardware supplier will also provide
computers, servers, and video wall for the Central Monitoring Unit along with switches/routers for enabling a simplified IP network for transfer
of data
• Technology Provider: Provide the composting technology along with technology for incineration and gasification along with other
associated technologies in the plant. Technology provider will also develop an application for real-time data transfer from citizens to Central
Monitoring Unit database. Additionally the technology provider will provide a platform for sale of recycled product.
• System Integrator / Consultant: Integrate the infrastructure with the technology solution and ensure seamless flow of data at all stages of
the value chain to the Central Monitoring Unit and vice versa. Also integrate the citizen feedback mechanism into this solution in order to be
able to generate automated reports and ensure timely decision making and action.
The hardware provider or technology provider may also enter into a PPP agreement to recycle the waste on land allocated by the government on
a Build-Operate-Maintain model. The private partner can also participate through provision of manpower for collection, sorting and processing.
©2016 Deloitte Touche Tohmatsu India LLP 127
4. Integrated Traffic Management Solution (1/3)
India with its high population density has a large number of congested urban areas not just in terms of population concentration but also in terms
of vehicular movement. Motorized vehicular traffic is fast rising in urban areas leading to greater congestion and pollution along with lower safety.
The Smart City Mission aims to develop cities wherein pedestrian facilities and by-cycle facilities are given predominance along with well-
designed traffic signal management in order to promote non-motorized vehicular movement and road safety.
Cities are proposing the development of bi-cycle tracks, large pavements with green cover and other citizen amenities like sitting area, energy
efficient lighting, innovative use of open spaces along with an Intelligent Traffic Management system to regulate and monitor traffic movement and
citizen safety. Modern day Traffic Management System can be integrated with air pollution monitoring, citizen safety monitoring and weather
information monitoring systems.
The key features and benefits of the solution include:
• Provide real-time traffic monitoring and incident reporting along with facility for reading license plate number of defaulting vehicles and
generating e-challans
• Enable enhanced traffic management with facility for enabling pedestrian movement through push button for pedestrian / cyclist initiated
cross over request
• CCTV cameras mounted on traffic light poles providing surveillance service for the citizen of the urban area
• Sensors mounted on traffic light poles for monitoring air quality and weather data, which is thereafter displayed on LED screens across the
city
• Provide advisory radio service linked to the traffic signal and CCTV enabled monitoring service for better police patrolling in the urban region
©2016 Deloitte Touche Tohmatsu India LLP 128
4. Integrated Traffic Management Solution (2/3)
A conceptual
framework for
Integrated Traffic
Management solution
with its individual
components and
relevant stakeholders
is elaborated below.
©2016 Deloitte Touche Tohmatsu India LLP 129
4. Integrated Traffic Management Solution (3/3)
The key stakeholders involved and their roles include:
• Urban Local Body / Police Commissionerate: Manage the Central Monitoring Unit with assistance of private partner in managing traffic
signal, traffic/ non traffic incidents based on CCTV footage, generating e-challan for defaulting vehicles, generating air quality and weather
data for display and providing linkage to radio service for police action. The Police Commissionerate / Traffic will also be responsible for
managing the traffic signal display.
• Hardware Supplier: Provide sensors for air quality monitoring and weather monitoring, push button for traffic flow control, device for
reading license plates, CCTV/ Traffic detection cameras, signal controller, LED traffic signal heads and Intelligent Electronic Device.
Hardware supplier will also provide computers, servers, and video wall for the Central Monitoring Unit along with switches/routers for
enabling a simplified IP network for transfer of data
• Technology Provider: Provide the technology for traffic monitoring, weather and air quality monitoring along with transfer of data to CMU
and signal controller.
• System Integrator / Consultant: Integrate the infrastructure with the technology solution and ensure seamless flow of data at all stages to
the Central Monitoring Unit and to signal controller, display boards along with generation of e-challans.
©2016 Deloitte Touche Tohmatsu India LLP 130
Integrating Smart Solutions on a Single Platform
• Smart Cities in India will implement a multitude of Smart Solutions integrating infrastructure, information & communication technology and
institutional mechanism across thematic areas – water, drainage, sewerage, energy, transportation, air quality, safety etc. operated and
owned by agencies like municipal corporations, transport department, home department, electricity board etc.
• For the success of the implementation of the multitude of solutions, an integrated back end platform (cloud based solution) which is capable
of collecting data from the city level, processing it and generating potential and possible responses in an intelligent manner which can then
be actioned upon by city level central control rooms, will prove to be beneficial.
• Such an architecture will also permit private service providers to host their applications on the cloud based infrastructure and provide their
services to citizens on a fee.
• Adoption of such an architecture is expected to significantly reduce the time and cost of implementing smart city functionalities by leveraging
solutions that are already existing, both in the public and private sector, enabling rapid scaling up of facilities.
©2016 Deloitte Touche Tohmatsu India LLP 131
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