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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


• 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


‘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.


• Context


− Make in India has the potential to transform the manufacturing landscape

of India


− New Processes

− New Mindset


− New Sectors


Agenda



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



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.



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.



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.


• Context


− Make in India has the potential to transform the manufacturing landscape

of India


− New Processes

− New Mindset


− New Sectors


Agenda



hub?


• 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.



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.




Sector Focus: Health, Chemicals & Life Sciences


Healthcare


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


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


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


• 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


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


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


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


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


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


Chemicals


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


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


• Context – Why is the growth in Indo-US trade in Chemicals sector

important?


• Evolving trends – What’s changing and what are the opportunities and

challenges?

• The acceleration agenda – Road ahead for each of the stakeholders

Agenda


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


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


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


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


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


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



important?



challenges?


Agenda


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


…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)


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


• 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



important?



challenges?


Agenda


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


…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


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



important?



challenges?


Agenda


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


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



• 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



• 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



• 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


Life Sciences


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


‒ 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


‒ 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



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


• Context – Why is the growth in Indo-US trade in Life Science sector

important?



challenges?


Agenda


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


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


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


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



important?



challenges?


Agenda


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%


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



important?



challenges?


Agenda


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)




• 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



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




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


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



• Although the incidence of infectious diseases is high in

India, the country’s growing affluence is driving lifestyle

diseases


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



• 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


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



• 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


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



• 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


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


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


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



important?



challenges?


Agenda


Stakeholder engagement will be critical to drive Indian

presence in the global market especially in the USA


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



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






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.


− 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


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,


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


India – US trade in Aerospace & Defence: Opportunities

abound


− 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



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





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


The Opportunity in Indian

and US Retail markets


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


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


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


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


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


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.


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


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


Regulations, Challenges

and Opportunities


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


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


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


• 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


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)


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


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





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.


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


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.


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


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


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.


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.



Purpose Vehicle




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%



Purpose Vehicle




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.


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.


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.


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.


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.


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.




• 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




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




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




• A conceptual framework

for ICT Enabled Citizen

Service Delivery along

with Municipal

Governance Services

with its individual

components and

relevant stakeholders is

elaborated below.




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


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


2. Water Management Solution (1/2)

A conceptual

framework for SCADA

based water

management with its

individual components

and relevant

stakeholders is

elaborated below.


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.



A conceptual

framework for smart

Solid Waste

Management with its

individual components

and relevant

stakeholders is

elaborated below




• 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.


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



A conceptual

framework for

Integrated Traffic

Management solution

with its individual

components and

relevant stakeholders

is elaborated below.




• 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.


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.


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sourced from publicly available information or other third party sources. DTTILLP does not independently verify any such sources and is not responsible for any loss whatsoever

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