Future of India: the Winning Leap

Breaking new ground by deploying solutions for rapid, sustainable and resource-efficient growth

Future of India The Winning Leap Table of contents

2 Preface

4 Executive summary

18 32

Chapter 1: Chapter 2: Growth ambition Sectoral challenges and exemplars and the Winning Leap

pwc.in/thewinningleap 72 88 96

Chapter 3: Chapter 4: Chapter 5: Role of the private Entrepreneurial The ease of doing sector: Building capa- sector business bilities

140 Appendix I: List of interviews

143 Appendix II: PwC Contributors

108 128 144 Appendix III: Research Chapter 6: Chapter 7: Methodology Capitalising on Realising our ambition India’s growth story 2 2 PwC PwC Future of India The Winning Leap Preface

A young India, with a large digitally enabled middle class is asking for growth and change. Without building the skills and capabilities necessary to drive innovation, the nation risks stagnation. However, if India can create capabilities for growth and new solutions, the opportunities, both at home and abroad, are limitless. Our report, Future of India - the Winning Leap is driven by the belief that India can build shared prosperity for its 1.25 billion citizens by transforming the way the economy creates value. Corporate India has a critical role to play in this story, not only by creating value by addressing key societal needs, but in supporting a vibrant entrepreneurial sector. Additionally, it needs to partner with the government in order to implement new developmental approaches. PwC’s analysis of key sectors such as education, healthcare, agriculture, financial services, power, manufacturing, retail, urbanisation, digital and physical connectivity suggests that new solutions are necessary in each sector. These Winning Leap solutions will enable sectoral growth with a fraction of the resources to attain desired outcomes. As the world increasingly confronts technological change and sustainability challenges, we believe India and the Winning Leap can offer an exemplar for other growth markets. Our report also outlines how government will need to create national platforms and improve the ease of doing business. A sixth of humanity, with the intellect, energy and creativity of a young nation is poised to grow rapidly. At PwC, we are energised and humbled by this opportunity and the benefits that can flow to India’s citizens, its businesses, investors and the government. This journey will have its own sets of challenges, and by no means guarantees growth. But, with a concerted effort we believe rapid, equitable and sustainable growth is achievable. As a global business with over 9,000 people in India and a 130-year relationship with the country, the possibilities highlighted by the report are exciting. PwC is committed to playing its role in India’s Winning Leap.

Dennis Nally Deepak Kapoor Juan Pujadas Chairman Chairman Vice Chairman PricewaterhouseCoopers PricewaterhouseCoopers India Global Advisory Services International Limited PricewaterhouseCoopers International Limited

Future of India 3 Executive summary

4 PwC The Winning Leap Noun; Breaking new ground by deploying solutions for rapid, sustainable, and resource-efficient growth; a play-to-win approach by young and growing nations seeking a radically different development path; a phrase denoting small steps by millions of people that can culminate in a giant leap forward for their nation; a phrase that citizens, entrepreneurs, business leaders, investors and government leaders associate with a ‘once-in-a-lifetime opportunity’ to lift millions into prosperity; an approach that industry leaders can use to build new capabilities for profitable growth; a state of mind focused on possibilities while recognising roadblocks in solving a wide set of challenges facing a nation

In its seventh decade of indepen- Anything less than US$10tr would A 9% GDP growth rate with a per dence, India stands on the cusp of not secure India’s future. The nation capita income rising from US$1,500 major change: a transformation needs to create 10-12m jobs every to just under US$7,000 per year will that could lead to unprecedented year in the coming decades to boost quality of life for more than economic growth paired with radi- provide quality of life for its growing 1.25bn citizens. This would be the cal improvements in the nation’s population. Young Indians, par- largest national development effort Human Development Index (HDI). ticularly members of the emerging any democracy has ever attempted. Over the past two decades, India’s middle and the middle class—a Reaching this goal will call for a gross domestic product (GDP) has billion strong by 2034—have rising concerted effort—from businesses, risen by more than US$1tr, in the aspirations. They are also more entrepreneurs, investors, and gov- process bringing millions of citizens empowered to demand change, ernment leaders. It will also require into a new cohort we call the emerg- thanks to ever-greater access to the new solutions we collectively term ing middle class. We set out to internet and mobile connectivity. the Winning Leap. Our research understand what it would take for The recent electoral mandate for focuses on the role that corpora- India to increase its GDP by 9% per development is a more immediate tions and entrepreneurs must play year to become a US$10tr economy signal of Indians’ desire for growth in helping to deliver this growth over the coming two decades. and for the benefits of growth to be while building new capabilities. extended to all members of society.

Future of India 5 The national ambition

Building a $10 trillion economy $10.4 trillion If India continues on its present growth course, it could have a US$5.6 trillion economy in 20 years. To create a US$10 trillion economy, India will need to accelerate its growth to 9% CAGR over the next 20 years.

$5.6 trillion

$1.9 trillion

Real GDP (US$, 2010 prices) 2014 Baseline 2034 The Winning Leap

Creating new capabilities

Five key themes for the corporate sector To lead the Winning Leap, companies will have to address five key themes requiring new capabilities

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6 PwC Solving problems across sectors

Achieving the Winning Leap means finding solutions to some of India’s most persistent problems. As the country transforms, these must become vectors of growth not weights slowing the country’s rise.

Healthcare 80 years Manufacturing >25% 2034 of GDP Raising life Increasing 2034 expectancy value‑added manufacturing 2014 2014 66 years 12% of GDP

Education 10 years Retail 50% 2034 share Keeping children Increasing the 2034 in school market share of organised 2014 2014 retail 7 years 8% share

Agriculture 7.4 Power 100% tonnes/ access Improving hectare More and better 2034 productivity 2034 power to more people 2014 2014 4 tonnes/hectare 75% access

Financial 90% Urbanisation 650 mn services access people 2034 Modernising 2034 Providing urban areas banking to more people 2014 2014 35% access 400 mn people

Digital 80% Physical 8% connectivity access connectivity of GDP 2034 2034 Broadening Reduce the network logistics 2014 cost 2014 15% access 13% of GDP

Taking the right sub-leaps

Fierce Catch-up Significant Leap Leapfrog

Using traditional Adopting new or different Skip a generation or create approaches or technologies— approaches and technologies an entirely new method of to surmount challenges— that may have been developed business model or technology at an accelerated pace elsewhere but that would also work in India

Future of India 7 We also highlight the critical role since 2007, Brazil has been unleash- that the government will have ing the power of its private sector to to play to support this goal, by accelerate its growth. In India, we creating national platforms and found double-digit growth stories an enabling environment. in key states that provide internal examples of what the nation itself Our research methodology com- is capable of. prised interviews with about 80 leaders in India and abroad, work- Challenges as opportunities shops with sector leaders, insights To realise the Winning Leap vision, from academic and economic India needs to view its many specialists, and an online survey economic and social challenges completed by more than 1,500 PwC as opportunities for growth and employees. The message we heard renewal. With this perspective was unambiguous: to surmount its in mind, we investigated perfor- challenges and secure its future, mance in ten sectors that, together, India needs to focus on creating constitute more than 70% of India’s new solutions that will radically GDP. Each sector faces challenges improve its economic and human- whose resolution will require new development performance. solutions that are scalable, resource efficient, and environmentally We began with an analysis of other sustainable. For example, the countries that have embarked on a education sector will have to deliver similarly ambitious growth journey, high-quality, formal education to including exemplars from middle- 7m additional children every year income countries in Asia and Latin over the next two decades. Yet with America. China, for example, current education investments has shown remarkable economic estimated at just 3% of India’s GDP, growth, albeit under political and achieving this target won’t be easy social circumstances that are very using traditional strategies. India’s different from those that charac- healthcare sector offers another terise India. South Korea has vastly case in point. To serve a growing improved its HDI since 1983. And

8 PwC population, the sector will need In addition, we examined perfor- schooling matters, spending more 100,000 additional doctors and mance in what we call enabling time in school won’t mean much 300,000 additional nurses every sectors: India’s digital and physical unless the quality of the education year through 2034. But this sector, connectivity. For each sector exam- also improves. And that means too, faces an investment challenge. ined, we defined a key metric—a strengthening curricula, driving Additional sectors we examined— “vector of growth”—with which innovation in the use of learning agriculture, retail, utilities, to assess growth performance. channels, and improving teacher manufacturing, financial services, (See previous page.) We arrived at training. urban infrastructure—all confront targets for these vectors by looking a similar challenge. Each has to at countries at a similar stage of A closer look at the Winning grow, despite resource constraints. growth and by consulting sector Leap solution Managing this imperative will experts. With sectors that support As we investigated these vectors, we require significant new investment and enable growth in other sectors, saw that linear growth in each will and innovative approaches. like digital connectivity, we took not be enough to enable the growth a more aggressive approach, imag- envisioned for India. Given the com- Complicating things further, all of ining India reaching world class plexity and scale of the challenges these sectors are interconnected: a status by 2034. facing India, the resources required, setback in one spawns setbacks in and the urgency of demands for others; improvement in one enables Vectors represent targets that must change coming from Indian citizens, improvements in others. As just one be achieved for the corresponding sector players must deploy solutions example, higher-quality education sector to help drive overall rapid that deliver nonlinear growth. Our and healthcare result in healthier, growth in India. Moreover, each analysis of sector growth suggested more skilled workers who can help vector has quantitative as well as three categories of solutions. drive growth and innovation in qualitative submetrics. To illustrate, (See Figure A.) India’s manufacturing sector. while increasing average years of

Figure A: Categories of Winning Leap solutions

Fierce Catch-up Significant Leap Leapfrog

Future of India 9 Figure B: How new approaches could contribute to India’s economy

Leapfrog

40% Significant leap New solutions $10.4 tr* GDP

Fierce catch-up

60% Unblocking and executing existing methods

$1.9tr* GDP

2014 2034 Source: PwC analysis

Each sector of the Indian economy and adopt mobile health techniques will need to execute solutions drawn and technologies (Leapfrog). from all three categories if India is Combining these strategies could to build its GDP to US$10tr in 2034 reduce the number of additional and improve its HDI in an environ- hospital beds needed by 1.2m while mentally sustainable manner. still boosting life expectancy to 80 years in 2034. That reduction in the Take the vector life expectancy at number of new beds could translate birth as an example. To increase life into savings of more than US$90bn expectancy from today’s 66 years to in capital expenditure on healthcare 80 years in 2034, our analysis shows delivery infrastructure. that a traditional approach would require the addition of 3.6m new Other sectors can benefit similarly. hospital beds over the coming two For instance, a Winning Leap decades. A Winning Leap approach approach that increases average will take a decidedly different tack, years of schooling from 7 to 10 whereby healthcare-sector players in 2034 could save the education scale more operationally efficient sector US$170bn in cumulative business models (Fierce Catch-up), investments. And a Winning Leap encourage preventive healthcare approach providing 24/7 access and home care (Significant Leap), to power for all citizens while

10 PwC We are sitting at 1.2 billion, going on to 1.5 billion in population. While this is a huge challenge it is also a large opportunity. It will stretch our finite resources to the limit unless there are some breakthroughs in technology.

Ajay Kumar Misra Tata Global Beverages

increasing power delivery three- Winning Leap solutions not only fold can be achieved through drive rapid growth in a resource- approaches that save US$200bn efficient manner but also are in capital expenditures. environmentally sustainable. The Winning Leap is more than just a Our analysis suggests that up to new approach; it’s a “play to win” 40% of India’s US$10tr economy mind-set for sector leaders and in 2034 could be derived from new the country. solutions. (See Figure B.) Such solutions could be successfully These and other analyses are implemented with 25-30% less explored closely in Chapters 1 resources than those required by and 2 of this report. traditional solutions. Therefore,

11 The private sector’s role in This growth journey will also Indian companies will find a achieving the Winning Leap require public-private partnering place among the global top 100 India’s private sector—established in its broadest sense. To support by size and scale if the nation can corporations and entrepreneurial progress in a number of sectors, the achieve its US$10tr GDP aspiration. companies alike—can play a key government will need to continue These industry champions will not role in developing and deploying building national platforms such as only demonstrate unprecedented Winning Leap solutions. Why? The improved roads, ports, and physical growth themselves but also build private sector is more nimble than connectivity as well as better new capabilities essential for ongo- the government and social sectors digital infrastructure. ing innovation of new products, in terms of its ability to craft new services, and business models. business models and strategies and If India can achieve a 9% per year leverage new technologies. Given growth trajectory, its economy To foster the emergence of such their experience with globalisation, would become the world’s third- world-class Indian companies, these companies are well positioned largest in 2034, after the US and India’s private sector will have to learn from and experiment with China. This achievement would to invest more in research and best practices developed by create world-class companies development (R&D), particularly their global peers. International originating in India that develop for solutions to challenges facing companies looking to participate capabilities essential for other emerging markets, where India has in high-growth markets are high-growth markets as well. These already established a leadership equally well equipped to develop companies could successfully serve position. Indeed, our economic relevant solutions. India’s already large and growing model shows that India’s Winning domestic market while also Leap will require an increase in competing on the global stage. R&D spending from 0.8% of GDP We anticipate that at least ten to 2.4% in 2034.

12 PwC Five themes for the Figure C: Five key themes for the corporate sector corporate sector

All too many Indian companies Serving informed and As information grows (in both access and volume) still don’t realise the changes empowered customers and Indian consumers and businesses are more able highlighted in our research. For to apply this information in their decision making, they those that are aware, many are become more empowered. And with their increased empowerment, they’ll demand ever more value from not responding swiftly enough. To the products and services they buy—including greater achieve the scale of transformation quality and convenience. Companies will need to required for India’s Winning Leap, rethink their business models and competitive strategies to profitably serve these customers. businesses in as much as 40% of the nation’s economy will have to execute new solutions and build Creating flexible and To reach these more demanding customers, Indian new capabilities. To accomplish this, adaptive operating models companies must build new kinds of operating models, companies must focus on excelling such as asset-light models; experiment with at five interconnected themes. unconventional sales and distribution channels; and leverage technology in new ways. (See Figure C.)

These five themes are explored Drawing on nontraditional To acquire or build capabilities needed to drive in detail in Chapter 3, including resources and partnerships growth, Indian companies can import knowledge how they interrelate and which and technologies through models such as licensing and forge partnerships with the government and capabilities and technologies social-sector organisations. will prove most crucial for each.

Adopting a growth and Indian companies must weave a commitment to innovation mind-set growth into their corporate DNA by fostering companywide awareness of consumers’ needs, investing enough in R&D, and unlocking entrenched organisational structures and attitudes that are inhospitable to new solutions, new business models, and new approaches.

Focusing on accountability, To drive rapid growth, Indian companies will need integrity, and sustainability to align their top management and board to make everyone accountable for growth, embed integrity into their organisational culture, and uphold sustainability and social impact as core values of the organisation.

Future of India 13 Entrepreneurs’ role The importance of ease in the Winning Leap of doing business Like large, established corporations India’s private-sector players can in India, entrepreneurial companies deliver Winning Leap solutions in India can play a critical role in only if regulations and government developing and deploying Winning policies make it easy to do business Leap solutions. Indeed, the large in India. In 2013, India ranked 134 Indian companies of tomorrow will out of 189 economies in the World emerge from the entrepreneurial Bank’s Ease of Doing Business sector of today. A groundswell of index. Our analysis and discussion entrepreneurial energy in India with experts in this field suggest has sparked recent, well-publicised that there is some low-hanging fruit successes in the e-commerce sector that could be harvested to improve alone, and our research suggests this ranking—in areas like ease in the potential for similarly starting a company and in paying entrepreneurial growth in virtually taxes. Progress on these and other all of India’s sectors. fronts could improve India’s rank in this index by more than 50 in just a Our research has also focused on few years. Other improvements will the interplay between corporations require more complex policy and and entrepreneurs—in particular, mind-set changes. An additional how corporations can help by benefit of improving ease of doing linking new ventures to their sup- business in India could take the ply chain and by mentoring and form of greater confidence in coaching entrepreneurs on best India on the part of multinational business practices. In addition to companies, which would translate being especially nimble in terms of into larger flows of foreign direct driving innovation, entrepreneurial investment and know-how into businesses have a huge potential to India, two essential ingredients for create the new jobs needed by the growth and innovation. The topic of Indian economy. Our findings and ease of doing business is examined analyses related to entrepreneurs’ in closer detail in Chapter 5. role in the Winning Leap are discussed in detail in Chapter 4. Three economic-growth scenarios With data and modeling from Oxford Economics, we’ve defined three possible economic growth scenarios for India, each hinging on different strategies and achievements that could come from corporations, entrepreneurs, and the government and each reflecting a different focus for investment:

Scenario 1 Scenario 2 Scenario 3

Pushing old ways Turbocharging investment The Winning Leap includes faster outlines a focus outlines the impact of rapid investment in both human and on investment in and significant investment in physical capital (as in the education, health, and physical infrastructure and previous two scenarios) but other dimensions related to envisions a 7 trillion for GDP also focuses on investment human capital. Our analysis leading up to 2034. in R&D and innovation and suggests that in this scenario, envisions a 9.0% CAGR for India’s GDP could see a 6.6% GDP between now and 2034. compound annual growth This scenario forecasts the rate (CAGR) between now most aggressive growth and and 2034. is the only scenario that will generate the 240m new jobs that India’s growing population needs over the next 20 years.

$10.4 tr

S2 $7.4 tr S1 $6.8 tr ): 9% 2034 B $5.6 tr (2014- CAGR

$1.9 tr

2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034

B Baseline S1 Scenario 1 S2 Scenario 2 Winning leap Forecast

Source: Oxford Economics

The Future of India 15 We have also highlighted the system could hurt investments challenges and roadblocks to in R&D and innovation. These achieving the identified growth in scenarios are explored more GDP. For instance, for Scenario 1, closely in Chapter 6. India will need to capitalise on its demographic dividend while also How to use this report mitigating the risk of mass unem- The central purpose of this report ployment among its youth, which is to drive action. We hope that the could be amplified by unaddressed frameworks, analyses, and ideas health and education problems. for action laid out in this document In Scenario 2, water scarcity and will help catalyse corporate lead- energy security could jeopardise ers, entrepreneurs, investors, and investments in physical government officials to take actions infrastructure. And in Scenario aimed at contributing to India’s 3, continued weakness in India’s Winning Leap: intellectual-property protection

Corporations If you’re a senior executive at a corporation, you may find Chapters 2, 3, and 4 of particular interest. These and other chapters can help you spark dialogue on how your company can spur its own growth, craft Winning Leap solutions that benefit India overall, and set the stage for elevating your company to world- class status. See pages: 32, 64 and 80

Entrepreneurs If you’re an entrepreneur, you may want to pay especially close attention to Chapter 4 as well as Chapters 2 and 3. We recommend using these and other chapters to brainstorm ideas for partnering with large, established corporations (such as being mentored by a large corporation), for scaling your company, and for stepping up creation of new jobs. See pages: 32, 64 and 80

Investors If you are an investor, Chapters 2 and 6 may be of particular interest, because they explore sector opportunities, the different growth options facing India, and the approximate size of the investment opportunity. International companies seeking to enter India, acquire Indian companies, or invest in other ways in India’s growth story will find this content equally useful. See pages: 32 and 100

Government If you’re a government leader, Chapters 2, 5, and 6 may be of particular interest to you. These and other chapters can help you and your colleagues explore ideas for improving ease of doing business in India (for example, by working with an industry council focused on this goal) and collaborating with businesses to identify short- and medium-term actions that the government could take to elevate India’s ranking in the Ease of Doing Business index. See pages: 32, 88 and 100

These concepts are covered in greater detail in Chapter 7 (page 128).

16 PwC By using this report, you can initi- The international leaders who took ate new conversations that lead to part in our study were especially long-term capability building and passionate in their opinion that profitable growth for your organ- while the Winning Leap is critical isation or institution. In doing so, for India, it’s equally important for you will be joining business lead- other growing economies. It is our ers, entrepreneurs, investors, and hope that business and governmen- government officials who partici- tal leaders in other such economies pated in our study—all of whom will draw lessons from India’s were energised by the possibility of experience and make strides toward India’s rapid growth and spread of their own Winning Leap. prosperity that our report outlines.

17 18 PwC Chapter 1 Growth ambition and exemplars

We are kept from our goal, not by obstacles, but by a clear path to a lesser goal.

The Bhagavad Gita

India today can best be described growth (both economic growth and as a restless nation, with calls for improvements in human well-being) change coming from almost every now, and they believe it can happen corner of society. International in their lifetimes. and domestic news media are rife with critiques and warnings about India’s youth want to make an India squandering its extraordinary economic and social difference. potential because of an outdated Members of a burgeoning emerging sociopolitical system, and India’s middle class are looking for new, citizens are exerting increasing customised solutions to address pressure for institutional reforms. unmet needs. Citizens and consumers are feeling informed and Yet many are doing more than empowered to demand as well as just protesting India’s situation: drive change. Citizen organisations they are actively seeking change. are pushing to ensure that economic They recognise that given the scale growth is accompanied by equally of the problems facing this vast valuable improvements in human nation, slow reform may not be an development. In the sections that option. They demand change and follow, we take a closer look at these calls for change.

Future of India 19 A young country with rising Figure 1.1: India’s working-age population expectations India is a young country; nearly Working-age population (15-64 years) 65% of its population is younger 1,200 than 35.1 It has an opportunity to I drive economic growth on the back 1,000 C of its rising working-age population (those aged 15-64). This population 800 has boasted a compound annual growth rate (CAGR) of 2% since 600 2000,2 a situation often referred to as India’s demographic dividend. The nation is expected to add 400 almost 10-12m people to its work- 200 US force every year over the next two B decades, with the working-age SK population crossing the 1bn mark 0 by 2030.3 (See Figure 1.1.) As 1950 1960 1970 1980 1990 2000 2010 2020 2030 other growing economies confront C China I India US United States a rapidly greying population, India’s young population could B Brazil SK South Korea Forecast fulfill demand for skilled Source: United Nations Development Programme workers worldwide.

However, India risks squandering this demographic opportunity if it cannot create quality employment values and lifestyles that have opportunities at scale and train its accompanied those trends is growing workforce to excel in those far more challenging. jobs. With greater access to information and growing aspirations among A key outcome of the technology the nation’s youth, the quality of revolution in India has been employment that India provides connectivity, which has fueled will prove as crucial as the quantity. unprecedented access to information. Millions of people who had Proliferation of new little means to join the national technologies discourse can now gain new insights Emergence of new technologies, into the world around them. Farmers especially mobile, in India has know crop prices. Consumers under- sparked social change that’s dif- stand global standards of product ficult to quantify. Mobile, Internet, and service quality. Rural Indians and social media penetration and recognise the differences between growth can be quantified, but the opportunities available to them describing the changes in social and those available to their urban

20 PwC counterparts. And citizens have a Increases in the number of smart- be linear, the proliferation of knowl- mass forum for expressing their phones and 3G subscriptions are edge through use of new digital political opinions. The upshot of further driving this growth. Indeed, technologies appears exponential. this connectivity revolution has the number of smartphone users is been empowerment of Indians. expected to see a 91% CAGR from As many as 82% of mobile Internet 2012 through 2016, jumping from users access the Internet for the To understand the scope and scale 29m to 382m. Similarly, the number purpose of social networking. of this change, let’s start with of 3G subscribers could experience And social media is fast penetrat- teledensity,I which has improved an 84% CAGR—from 23m to ing tier-2 and tier-3 cities in India, substantially thanks to mobile 266m—in that same time frame.7 with 24% of active users living in telephony. The number of mobile areas with a population of less than subscribers in India jumped from Thanks to rising Internet penetra- 200,000.10 Users do more than just 261m in 2007-2008 to 910m tion, the gross number of online post videos or interact with one in 2013-2014.4 users in India now exceeds the another through social media; they number of people who have com- also actively search out information Along with telephony, Internet pleted primary education. This shift on products and services of interest penetration is soaring in rural and emphasises the increasing relevance to them, organise reform campaigns urban India. Urban India boasts of India’s digital economy. The and petitions, and hunt for jobs. 137m Internet users; rural India, number of Internet users soared 68m. Moreover, the number of from approximately 20m in 2004 to Perhaps most important for India’s rural Internet users is growing nearly 250m in 2014.8 By contrast, future is that the ever-easier access by 58% annually.5 the number of people who have to information allowed by technol- studied beyond the eighth standard ogy advances has inspired Indians Roughly 15% of active mobile-voice is about 200mn,9 indicating that to demand change. And in any subscribers access the Internet even uneducated people are access- society, as citizens become more through their mobile phones. ing the Internet. While increases in informed about what’s going on (India had 130m mobile-Internet use of traditional options for gaining around them and more involved in users as of December 2013.6) knowledge, such as education, may driving needed change, civil society grows stronger. I Teledensity (subscriptions per 100 people) in urban India was 139 in 2012-2013. In rural India, it was 42.

21 State-level performance

Figure 1.2: State wise disparity

Jammu and Kashmir

Himachal Pradesh

Punjab Uttarakhand

Haryana Delhi Arunachal Sikkim Pradesh

Rajasthan Uttar Pradesh Assam Nagaland Bihar Meghalaya Manipur

Jharkhand Mizoram Gujarat Madhya Pradesh West Bengal Tripura

Chattisgarh

Orissa

Maharashtra

Andhra Pradesh

Goa

Karnataka

Tamil Nadu Kerala Andaman & Lakshadweep Nicobar Islands Islands

22 PwC Figure 1.2: State wise disparity

High performance states: 150,000 Includes states having high Goa values on both axes (top seven in terms of contribution and 120,000 higher than average per Delhi capita domestic product)

Key laggard states: 90,000 States having significant Maharashtra contribution to national Gujarat Tamil Nadu domestic product 60,000 Kerala but have lower than average Karnataka Andhra Pradesh domestic product per capita India average West Bengal 30,000 Rajasthan Madhya Pradesh Uttar Pradesh Bihar Per capita state domestic product INR (2012-13) 0.0% 3.0% 6.0% 9.0% 12.0% 15.0% 18.0% State contribution to national domestic product (% 2012-13)

*State domestic product figures pertain to net state domestic product at constant (2004-05) prices (Net product = Gross product – capital depreciation) Sources: Directorate of Economics Statistics, Central Statistical Organization

There are many Indias within India. A closer look at the regional dis- This statement is true not just parities in maternal mortality from the standpoint of the nation’s reveals that the worst districts in cultural, lingual, and geographical India’s laggard states have some- diversity but also from an eco- times performed more poorly than nomic perspective. Some states in Sub-Saharan Africa. Meanwhile, India—such as Uttar Pradesh, Bihar, the best-performing states, such Rajasthan, Madhya Pradesh, Assam, as Kerala and Tamil Nadu, have and West Bengal—are on par with reported numbers close to those of Sub-Saharan Africa, or even below, the developed countries. on parameters like per capita GDP and some HDI aspects. Such disparity suggests a need for state-level interventions: Winning Leap solutions must be tailored to the states within India.

Future of India 23 Rise of the emerging The growth of a young population middle class that’s enjoying rising incomes is When people change their purchase creating a large emerging middle behaviour, the result is often class in India. According to PwC nonlinear shifts in demand. The estimates, this cohort could be aggregate demand may look linear, nearly 600m strong in 2021. but at an individual level, there Meanwhile, the Indian population are usually demand spikes that are overall will likely move up the difficult to explain. For instance, a income curve, as the lower-middle consumer who typically travels using class dwindles from 460m to 290m, low-cost options may inexplicably and the emerging-middle, middle, buy an expensive TV with many and upper-middle classes increase fancy features or demand high-end in size. (See Figure 1.3.) facilities from his or her educational institution. By 2021, India’s emerging and middle-class segments combined Such consumers’ numbers are will comprise nearly 900m people— growing rapidly in India. And they and will open up new opportunities could ultimately become one of for businesses. Recent research by the largest voices for change in the India’s Centre for Policy Research nation, owing to their aggregate has outlined how the nation’s emerg- economic power and their ing and middle classes count among informed, discerning nature. the most privatised in the world— meaning that members of these

Figure 1.3: India’s population distribution (millions)

Household Economic $ day 2010 2021 (projection) income/year (INR) class per capita 1.19 billion population CAGR % 1.36 billion population % Upper >8,50,000 > 10 80 9.7 190 14 middle+

3,00,000 – 8,50,000 Middle 5 - 10 170 6.3 300 23

1,50,000 – 3,00,000 Emerging 1.7 - 5 470 1.9 570 42 middle

<1,50,000 Lower < 1.7 460 -4.6 290 21

Source: Profitable growth for the globally emerging middle, PwC, 2012

24 PwC Figure 1.4: Historical per capita GDP and HDI in India

While the overall GDP per capita has grown at 4% CAGR since India’s HDI is closer to Sub-Saharian Africa than to countries 1980, economic growth has accelerated post 2000 such as China, Brazil and the US*

US 1,500 I 0.90 SK 1,490

1,255 1,200 B CAGR 6% C W

900 I

700 SA 600 484

354 CAGR 3% 0.35 300 1980 1990 2000 2010 2014 1980 1990 2000 2005 2010 2011 2012 2013

US United States SK South Korea B Brazil

Sources: World Bank data, United Nations Development Programme C China W World I India SA Sub-Saharan Africa *X-axis not to scale.

groups are increasingly inclusive growth. Achieving desired growth with real improvements in procuring services like security, results using traditional approaches the lives of the average citizen poses education, healthcare, and utilities will take too long. Instead, nonlin- a real challenge for policymakers. from private players, creating new ear approaches are needed, and Failure to address this challenge opportunities for businesses.11 they form the focus of this paper. could threaten the nation’s eco- This segment is also growing more nomic stability. tech-savvy as well as discerning Demand for inclusive growth when it comes to purchase choices. In any society, economic growth World HDI increased from 0.56 in To win in this market, companies without shared prosperity ultimately 1980 to 0.70 in 2014, but India’s will need to craft new value proposi- spawns instability. In India today, HDI reached only 0.59 in 2014. tions and then deliver them through people who feel left out of the nation’s The nation lags behind the global innovative business models. recent growth are actively seeking average on all three subparameters inclusion. At the same time, those of HDI—health, education, and Companies based in India and who have been empowered by India’s income—with the gap between abroad have launched new offer- economic revolution are demanding India and the developed countries ings to serve this domestic market, fast and sustainable reform. widest in education and income. and global media have thoroughly Of 187 countries, India ranks 135 documented these innovations. Although India’s gross domestic on HDI, just above Bhutan, But businesses cannot rely only on product (GDP) and per capita GDP II India’s per capita GDP has seen a 6% CAGR since existing solutions and innovations have grown steadily,II this growth is 2000, up from 3% during 1980-2000. to help Indians surmount the not translating into social develop- III HDI is a tool developed by the United Nations to challenges that they and their measure and rank countries’ levels of social and ment as measured by the Human economic development based on four criteria: life country will face in the future, Development Index (HDI).III (See expectancy at birth, mean years of schooling, expected years of schooling, and gross national such as an increasing demand for Figure 1.4.) Augmenting economic income per capita.

Future of India 25 Cambodia, and Laos in Southeast Defining the national Asia, and Ghana and Congo in ambition Africa. Among the BRIC nations India has possessed the right (Brazil, Russia, India, and China), ingredients for economic trans- India’s standing is much lower than formation for years. However, that of its peers: 135 versus Brazil’s 12 economic growth spurts have been 80, Russia’s 57, and China’s 93. followed by stagnation, and HDI has remained stubbornly low. After nearly seven decades of India’s economy entered the new independence, India hasn’t yet millennium strongly, with GDP developed the capacity to provide growth averaging 7.6% during healthcare to its millions of citizens 2000-2010 and the economy more and education to its more than 7m than doubling in size during that students. It’s in no position to man- time. But since then, performance age the more than 250m people has stumbled, with growth of expected to move to cities in the less than 5% in the past two next 20 years or to set up the more calendar years.13 than 600m new bank accounts needed to close the financial- inclusion gap.

26 PwC Intuitively, I feel we are sitting at the cusp of one of the biggest changes since 1850. If I take the period 1850 to 1950, the World War was not the biggest change for India; it was a big change for the world so was the Second World War. Independence was the big change for India, and I think we are sitting on the cusp of what could be the second biggest change.

R Gopalakrishnan Tata Sons

Economic transformation China has also become a global We believe that India could boost manufacturing hub and the world’s its current GDP of US$1.9tr to largest exporter and second-largest US$10.4tr by 2034 (and elevate importer. In addition, it boasts per capita GDP from US$1,490 the world’s fastest-growing to US$6,800) by achieving a GDP consumer market.16 CAGR of 9% over the next two decades.14 Reaching this level of GDP growth rates in China have growth will require transforma- averaged 10% over the last 30 years, tion—which will not be easy, proving that it is possible for huge, given that India has battled cyclical populous countries to sustain economic headwinds and structural periods of high growth. If India deficiencies such as underin- could replicate this growth vestment in infrastructure, an trajectory, it would achieve upper- unproductive business environment, middle-income status as soon poor education, and low-quality as 2034. health outcomes. With these conditions forming the backdrop, Human-development 9% growth seems difficult indeed. ambition To improve its HDI, India could However, we know that such take a page from exemplars such as transformation is possible. Consider South Korea. Until the 1960s, South China, which had a frail economy in Korea’s economy was based on sub- 1976, after the death of Chairman sistence agriculture. Over the next Mao Zedong. Today, China is the three decades, the country brought second-largest economy in the its economy and HDI to a level that world. In 1980, India’s per capita placed it firmly in the class of devel- GDP was marginally above China’s: oped nations. (See Figure 1.5.) US$354 versus US$339. Today, China’s is at US$5,788, and India’s is less than a mere quarter of that: US$1,490.15

Future of India 27 Figure 1.5: India’s human-development leap

Korea’s HDI progress India’s human-development leap

Growth: Growth: 26 points 26 points

0.89 Ambition: (World: 0.70) 0.85

0.63 0.59

HDI Index (World HDI: HDI Index (World HDI: 0.56) 0.70)

1980 (~30 years) 2013 2013 (~20 years) 2034

Very high development status India’s position in 2013 was indicates rating of 0.8 and above similar to that of South Korea in 1980. The leap for India will be to achieve the target status is a much shorter timeframe.

Source: United Nations Development Programme

Although South Korea is smaller substitution and export promo- next two decades. But these feats than China, its economic and tion strategies. Large industrial will be possible only if India invests human-development achievements conglomerates, chaebols, were key in sectors that build the social make the country stand out. South engines of this growth and chassis on which an economic Korea’s per capita GDP rose from developed strong global brands. growth engine can be mounted— US$3,976 in 1980 to US$24,934 By 1997, South Korea was the such as healthcare, education, in 2014.17 The nation ranks high in world’s 11th-largest economy. and infrastructure. education, quality of healthcare, Its balanced focus on both rule of law, ease of doing business, economic growth and inclusion has Aspirations: government transparency, job secu- resulted in major improvements Beyond the obvious rity, tolerance, and inclusion. Today, in universal healthcare, education, On several fronts, India is not living South Korea is the world’s seventh- and other safety-net benefits for up to its potential. For instance, largest exporter, its success driven its population. it accounts for just over 17% of by high-tech multinationals such as the world’s population,19 yet it has Samsung, Hyundai-Kia, In the 1980s, South Korea’s HDI only five companies in the Fortune and LG—each of which built its reached 0.63, slightly higher than Global 500, whereas China has capabilities during South Korea’s India’s today (0.59).18 Over the next 32.20 Meanwhile, only two Indian growth spurt. 30 years, South Korea’s HDI leapt nationals by 26 points. To make a similar won the Nobel Prize during In the 1990s, South Korea’s growth improvement in its HDI by 2034, 1993-2013; the UK had 22 Nobel was fuelled by strong domes- India needs to follow the post-1982 laureates during the same period.21 tic demand and an aggressive South Korean model. If it succeeds, On the sports front, Indian athletes investment drive by the govern- its HDI will reach 0.85, and its won only six medals in the London ment, which encouraged import per capita GDP could jump from 2012 Olympics, when the US US$1,490 to US$6,841 within the secured 104.22

28 PwC A Winning Leap is possible. China has done it. We have done it in the past, and it’s imperative that we do it again.

Ajay Piramal Piramal Group

To improve its performance on these resources may be untenable. India and other fronts, India needs to view must therefore embrace nonlinear its challenges as interconnected. growth solutions—those that lever- For instance, healthier citizens age technological or business-model get more from their education. revolutions. Happily, some Indian Better-educated graduates enter companies have already pioneered the workforce with stronger skills this approach. and can get higher-paying jobs. Take telecommunications. In India, Nonlinear growth exemplars the telecom industry leapfrogged to For India to reach its goals, it will mobile telephony, skipping fixed- have to blaze a new path. The line technology. In fact, during examples of South Korea and the first mobile auction in India, China can provide guideposts, fixed lines were more expensive but the world has changed since than mobile bandwidth. In the those two countries transformed last decade, India has had 50m 23 themselves. For example, given landlines and more than 900m 24 the environmental-sustainability mobile-phone subscribers. In the challenges affecting so many parts future growth in smartphone use, of the world today, a develop- rather than desktop-computer use ment approach that relies heavily is expected to drive additional on extraction and use of natural leaps in Internet usage.

29 India has to go for the big leap; there is no other option but to grow. If we do not grow, we face a demographic disaster. With such a large number of young people coming into the job market every year, if India has to remain united and peaceful, then there is no alternative but to grow fast.

Harsh Mariwala Marico

Similarly, in IT services, India has automotive sector, Tata Motors as across the economy’s productive birthed global brands including well as Mahindra & Mahindra are sectors, including value-added Infosys, TCS, Wipro, and HCL. offering vehicles with world-class manufacturing, agricultural yield, Seemingly emerging from nothing, technology at competitive prices banking services, retail, utilities, India’s IT-service industry became to customers in India and abroad education, health, urbanisation, a US$100bn giant in just 20 years, by excelling at R&D, design, and digital connectivity, and physical generating more than 70% of its innovation. connectivity, i.e. logistics costs. revenues through exports to devel- Improvements on all of these fronts, oped markets and creating 3m jobs Enabling the leap: A sector- which we spell out in Chapter 2, in the process.25 This growth was driven approach can accelerate the pace of change powered largely by the international We have defined the targets for in India and provide goalposts for market. In the future, India’s IT India’s Winning Leap as a US$10tr Winning Leaps within and across industry could enable similar leaps GDP fuelled by 9% economic sectors—as well as a Winning Leap in other sectors. growth over 20 years, along with a for India overall. 26-point improvement in HDI. To Other industries within India have hit these targets, India will have To be sure, transforming such sec- experienced smaller Winning Leaps. to drive radical transformation in tors will present challenges, but it In healthcare, for instance, compa- many sectors. will also open up new opportunities. nies including the Narayana Health Private sector companies, entrepre- Group and Aravind Eye Care System We maintain that improvements on neurs, and India’s long-standing have lowered the cost of heart and ten vectors of change will ultimately values and government institutions eye surgeries through operational determine India’s ability to meet will play a central role in achieving excellence achieved from volume- these aspirations. The vectors cut the targets for each vector. driven business models. In the

30 PwC About our research

In addition to interviewing more than 80 leaders that human development should be the key focus from the corporate, entrepreneurial, societal, and area for India, and that infrastructure, education, government sectors in India, we administered and healthcare will constitute the nation’s biggest a survey to PwC employees and partners that challenges. They identified corruption, regula- resulted in more than 1,500 responses. The major- tions, and lack of a forward-thinking mind-set as ity of our study participants were younger than the biggest roadblocks to surmounting those chal- 30, and women constituted 28% of respondents. lenges. They cited India’s demographic dividend A large majority of participants stated that India and entrepreneurial spirit as the country’s greatest could reach developed-country status (in terms of strengths. (See Figure 1.6) purchasing power parity) in less than 20 years by adopting nonlinear solutions. The participants felt

Figure 1.6: Survey responses

Respondents feel India can become a Approach that needs to be adopted developed nation in…

10 Significant years Leap 497 523 20 Leapfrog 761 years % 931 60 111 of respondents 57 % Fierce believe India 5 198 87 catchup years believe India needsout of the 50 can become a box thinking/non- years developed nation linear solutions in 20 years Source: PwC India Employee Survey (N=1500)

Future of India 31 32 PwC Chapter 2 Sectoral challenges and the Winning Leap

A person who cannot decide a goal simply cannot win.

Chanakya

India has bold aspirations: to living conditions—but only if India become an upper-middle-income propels economic and human country and improve quality of life development simultaneously and for its citizens. We maintain that sustainably. it can realise these aspirations by achieving a US$10tr GDP by 2034. Speed, inclusion, and sustainability To reach that target, it will need are key elements in this story. Our to grow its GDP at a compound research and conversations with annual growth rate (CAGR) of influential leaders show that growth 9% over the next 20 years. In the must occur across multiple sectors process, we believe, India could and population segments within create as many as 12m new jobs India. The sectors are interlinked: per year. This accomplishment growth for one enables growth could transform quality of life for for others. We call these multiple Indians, especially in the areas of ambitions vectors for growth. Our healthcare, education, and overall

Future of India 33 research identified ten such indica- Similarly, in healthcare, life expec- connectivity). The private sector tors on which India must excel to tancy at birth is important, but has a major opportunity to help achieve its ambition of rapid, inclu- healthcare improves even more India improve its performance on sive, and sustained growth. (See when the focus of care shifts from each vector. Companies that can Figure 2.1.) reactive to preventive. craft solutions to support such performance improvement can reap When it comes to the vectors, both We group our vectors into benefits including entry into new quantity and direction matter. For three classifications: Human markets, increased revenues, and instance, in evaluating improve- Development (life expectancy at a much stronger market position ment in education, the average birth, average years of schooling, than that of their competitors. To number of years of schooling is a agricultural yield, and access to seize these opportunities, corpo- useful quantitative measure, but it banking services), Institutional rate executives, entrepreneurs, and must be augmented by an assess- Development (share of organised government agencies should weave ment of the quality of the education retail, value-added manufactur- these vectors into their strategic being received during those years. ing, access to power, and managed planning over the next 20 years. Key Without improvements in quality, growth of urbanisation), and questions to address will include an increase in the years spent in Enabling (improving digital con- “How can we contribute to growth schooling may make no difference. nectivity and improving physical on a particular vector?” and “What partners will we need to work with to make such contributions?”

Figure 2.1: Ten Vectors of growth

Human Development Institutional Development

Healthcare 80 years Manufacturing >25% 2034 of GDP Raising life Increasing 2034 expectancy value‑added manufacturing 2014 2014 66 years 12% of GDP

Education 10 years Retail 50% 2034 share Keeping children Increasing the 2034 in school market share of organised 2014 2014 retail 7 years 8% share

Agriculture 7.4 Power 100% tonnes/ access Improving hectare More and better 2034 productivity 2034 power to more people 2014 2014 4 tonnes/hectare 75% access

Financial 90% Urbanisation 650 mn Services access people 2034 Modernising 2034 Providing urban areas banking to more people 2014 2014 35% access 400 mn people

Enabling

Digital 80% Physical 8% connectivity access connectivity of GDP 2034 2034 Broadening Reduce the network logistics 2014 cost 2014 15% access 13% of GDP

Source: World Bank, government websites, PwC analysis

34 PwC India is at rock bottom in many sectors, from healthcare and education to organised agriculture and tourism, and we need to evangelise the massive opportunity in all in order to take giant steps to bridge the gap.

Ronnie Screwvala UTV

We arrived at the vectors by assess- over the past two decades, and will healthy.2 ing countries that have made have to reach 80 years by 2034 to significant progress on a particular resemble the South Korea average.1 Creating Winning Leaps challenge over the last 10-20 years. across the ten vectors To develop the 2034 targets for each To understand the interrelated Incremental change is taking place vector for India, we drew insights nature of the vectors, let’s consider across the ten vectors, but it’s not from PwC’s sector experts, and we education. In India, average years happening fast or cost-effectively benchmarked comparative countries. of schooling went from five to seven enough. In the sections below, we To illustrate, for the past 20 years, over the past 20 years. To raise that look at the current conditions for per capita power consumption in number to 10 by 2034, India will each vector and consider steps that India increased by 100%. However, have to increase its investment in can be taken to drive improvement. over the next 20 years, this number education as well as improve sanita- will need to increase by 200% to tion and bathroom availability for bring India’s power consumption to girls in schools, efforts related to a level similar to Brazil’s. Similarly, healthcare. Likewise, improvements life expectancy at birth in India has in manufacturing performance inched up from 59 years to 66 years will come about only if workers are

Future of India 35 Vector one: Life expectancy at birth Today, the two most important problems of healthcare Good health is critical to human prosperity, yet quality of healthcare in India are lack of awareness and lack of access. The varies throughout the Indian popu- affordability in healthcare can only come if there are lation. Even though the country volumes. Doctors, nurses, infrastructure, equipment, has produced some of the best physicians in the world, the average and instruments are scarce. Hence, affordability will Indian has poor access to health- only be possible if there’s 100% utilisation. care services. Maternal and infant mortality remains high, owing to Dr. R. D. Ravindran inadequate healthcare infrastruc- Aravind Eye Care System ture. Moreover, poor nutrition keeps many young children out of school, preventing them from reaching their full potential.

Part of the problem is the shortage of people and physical infrastructure needed to provide better healthcare. The ratio of doctors per 1,000 people is just 0.6. In Brazil and China, it’s 1.8. And India has only 1.3 hospital beds per 1,000 people—significantly lower than the guideline of 3.5 beds defined by the World Health Organisation.3 Several factors have resulted in poor that previously only doctors could health outcomes such as low life do) have reduced doctor time, expectancy as well as high infant further helping to lower costs and and maternal mortality rates. To enabling the staff to serve larger bring about a Winning Leap in volumes of patients. healthcare, we imagine an India that has increased life expectancy Permanently lower costs at birthI from 66 years in 2012 to Improving health outcomes with- 71 years by 2024 and to 80 years out having to build costly new by 2034. We have also defined a infrastructure can also boost life subvector for the infant mortal- expectancy at birth. Narayana ity rate (number of infant deaths Health Group has done this by per 1,000 live births), which could investing in information and com- decrease from 44 to 31 in 2024 munication technology (ICT) to and to 12 in 2034. Similarly, the shift the point of care to patients’ maternal mortality rate (number homes. Through this model, nurses, of maternal deaths per 100,000 community health workers, and live births), which is at 190 today, trained family members provide could decrease to 124 in 2024 to 27 first-level primary care at home, in 2034.To achieve these targets, with serious cases monitored healthcare-sector players must focus remotely by doctors and nurses. on improving the reach, quality, and affordability of healthcare. The sug- Leverage digital technologies gestions below can help. High internet penetration can drive the adoption of telemedicine in Build more with less India, improving resource efficiency Improving healthcare infrastructure and rapidly expanding access to takes time and money. Low-cost health services. To these ends, India operational models combined with can replicate global best practices in innovative financing models could telemedicine. These include using help secure the needed resources. databases loaded with diagnosis Public-private partnerships (PPPs) protocols aggregated from the best present real possibilities. Through hospitals, training field workers and this financing model, the govern- on-call medics to reduce escalation ment provides land and financial of patients’ concerns to a doctor, subsidies to private operators, and collaborating with hospitals, which build hospitals and other doctors, and diagnostic centres to healthcare infrastructure. provide services in remote areas.

Specialty operational models also India can also leverage its strength as offer promise. In India, pioneers a world leader in vaccine manufac- include Aravind Eye Care System turing (it contributes 60% of global and Narayana Health Group. These production)4 to sharpen its focus on two hospitals invested in resources preventive care. Indian vaccine man- for specialised treatment (eye care ufacturers such as Serum Institute of and cardiac care respectively), India, Bharat Biotech, and Biological which enabled them to streamline E are renowned worldwide for their and standardise operations, making contribution to reducing the cost of their services more affordable. vaccines to about US$1 per dose, High asset utilisation as well as making preventive healthcare more para-skilling of nurses (training affordable than ever.5 them to perform some procedures I Life expectancy at birth indicates the number of years a newborn infant would live if the prevailing patterns of mortality at the time of its birth were to stay the same throughout its life.

Future of India 37 Improvements in the healthcare their lives, and many of those who We have defined the growth vec- sector will ripple throughout the stay in school emerge with insuf- tor for education as an increase in entire Indian economy. For instance, ficient skills and knowledge to find average years of schooling from well-nourished children will be good jobs. seven in 2012 to eight in 2024 and more attentive in school. They will ten in 2034. Achieving these targets learn more and ultimately enter the The few Indians who complete will require innovative solutions workforce with the skills and knowl- tertiary education may also lack across the education value chain. edge needed to support innovation the skills needed to excel in the jobs Results will include reductions in in their companies. available. In 2012-2013, almost dropout rates and greater enrol- 45% of graduates from tertiary edu- ment in upper secondary education Vector two: cation in India earned less than INR (an increase from 55% to 75%, Average years of schooling 75,000 (about US$1,300) a year.7 again similar to China’s number). High-quality education builds a Even as millions join the workforce Improving infrastructure for sec- nation’s human capital. To avoid each year, the shortage of qualified ondary and tertiary education and squandering its demographic divi- talent remains a top concern for improving student-to-teacher ratios dend, India must make substantial CEOs across India.8 as well as teacher quality are reforms in its education sector. The top priorities. Below, we offer nation’s education system has ben- The link between poor education recommendations. efited the upper class, producing a and India’s low labour-force par- II II Labour-force participation is expressed as the number of global CEOs. But it hasn’t ticipation is obvious. Against the proportion of the population age 15 or older that worked for the masses: India has the backdrop of India’s rapidly growing is economically active; that is, supplying labour for the production of goods and services during a largest illiteracy rate—33%—in the working-age population, low partic- specified period. world,6 in part because education is ipation can have serious social and not yet available to everyone. economic consequences, including unrest among young people. India In simple terms, there aren’t enough needs to raise workforce participa- schools in India, and many existing tion from 58% to 80%9 to be on schools have inadequate infra- par with China. Education and skill structure. Given the poor quality of development will prove critical for schools, many students drop out of achieving this target. the formal education system early in

38 PwC Figure 2.2: Reducing the rate of dropouts and boosting skills

Number of students per annum (in million) Enrol for Enrol for Start higher Start school class 10 class 12 education

25 10 7 3.5

Dropout and Dropout and Seek job Dropout Seek job Seek job

Goal: Improve retention to reduce unskilled labour Goal: Skill development for Goal: Improve students that drop off (~6mn) soft skills and to improve employability knowledge creation

Source: World Bank, press articles

Provide more blackboards and desks Empower students through Get more from technology In India, primary education is skills development Savvy deployment of technology primarily publicly funded and India can improve inclusion and could help India implement dis- not-for-profit. Boosting private quality of education by adopting a tance-learning solutions. Internet, participation could help improve credit-based system for vocational satellite, and mobile-based distance- average years of schooling along education and allowing interoper- learning programmes can improve with quality of education. For ability of credits between vocational education quality and affordability instance, PPPs could be used to and mainstream schooling. This at all learning levels. A technology- build new schools—the “black- system will encourage students to led model of education, based on boards and desks” approach. One complete their academic education remote connectivity, is also highly possibility is to create multipurpose while also acquiring practical skills scalable. Education-sector players facilities that can operate as not-for- that will help them find jobs with can even use existing technology— profit schools during the day and as employers that need their talents. such as the EDUSATIII satellite—to for-profit vocational education and deliver learning in new ways. training centres in the evenings. Use of technology-enabled solutions such as massive open online courses India must also tailor its education India also needs to get more stu- (MOOCs) to enhance the reach and system to the needs of the modern dents into school. Sarva Shiksha quality of vocational education is economy. Improving outcomes will Abhiyan (universalisation of gaining ground. MOOCs are online require more-effective teacher-train- elementary education) and the platforms offering a wide range of ing programmes; standardisation Rashtriya Madhyamik Shiksha courses, most of them developed in and accreditation of pedagogy Abhiyan (National Mission for partnership with reputable insti- across learning settings, including Secondary Education) are positive tutions. MOOCs may be a good vocational training; and the linking steps in this direction. short-term solution for bridging of curriculum to the needs of India’s skill gaps. digital and IT-enabled economy. (See Figure 2.2.)

III A communications satellite launched in 2004 by the Indian Space Research Organisation to meet demand for satellite based distance education.

Future of India 39 Vector three: hectares of land. China produces Our research identifies poor agri- Agricultural yield 450m tonnes of grain from 100m cultural productivity and inefficient Agriculture will play a crucial role hectares.11 In key commodities— food delivery as critical issues facing in India’s economic and human rice, wheat, and maize—China’s India. The nation has a significant development, nearly 50% of India’s yields far exceed India’s. grain stockpile, just behind that of workforce depends on agriculture (See Figure 2.3.) China, the world leader—yet 20% for their livelihood. Yet agriculture’s of Indians remain malnourished.14 contribution to the nation’s GDP has There are several culprits behind In 2012, India had a 40% shortage fallen from 42% in the 1960s to low agricultural productivity. Low of storage space for a total stock 18% today.10 penetration of irrigation is one of of 82m tonnes of food grain.15 them: 60% of arable land depends Improved storage facilities and A key factor behind this shrinking on monsoons for irrigation.12 more-efficient food-distribution share is poor yield per hectare, even Moreover, farming techniques are systems will help address these though most of India’s agricultural out of date and inefficient, with lim- challenges and could improve land is already under cultivation. ited focus on agricultural research food supply per person per day Let’s compare India’s situation and adoption of new crop technolo- from 2,500 kilocalories16 to with China’s. India produces 235m gies.13 3,500-4,000 kilocalories. tonnes of food grain from 135m

Figure 2.3: Yield per hectare in India for key commodities

Rice Yield (Tonne/Ha) Wheat Yield (Tonne/Ha) 8.0 6.0 7.0 C C 5.0 6.0 5.0 B 4.0 I 4.0 I 3.0 3.0 B 2.0 2.0 1.0 1.0 0.0 0.0 1990 2000 2010 2012 1990 2000 2010 2012

I India B Brazil C China Winning Leap

Sources: World Bank data, Wall Street Journal

China produces 450m tonnes of grain from 100m hectares of land whereas India produces 235m tons from 135m hectares, the second‑largest arable land in the world.

Land

China’s grain India’s grain production production

40 PwC India could benefit hugely by Improve precision farming and increasing yield for food grains input access from 4 tonnes per hectare in 201217 India’s agricultural sector needs to 5.4 tonnes per hectare in 2024 to shift toward data-driven preci- and 7.4 tonnes per hectare in 2034. sion farming—which uses sensors, Reaching these goals will require imagery, and other technologies to improvements in irrigation, farmer generate information for farmers education, and access to inputs such about weather, soil content, fertil- as fertilisers and good-quality seeds. iser, and pesticide levels. Farmers use the information to fine-tune Leverage mechanisation and data their techniques as well as optimise Stepping up mechanisation in resources and improve the quality farming could significantly improve and quantity of crops. Yet only 2.5m crop yields. The private sector and of India’s 120m farmers practise government can play a role by mak- precision farming,18 largely in the ing loans available for farmers to form of drip irrigation. Enabling buy mechanised equipment and by more farmers to use such practices developing awareness programmes could help India reach its agricul- that encourage farmers to advance tural productivity targets. their skills in machinery operation. Similarly, partnerships between IT-led solutions can also help. complementary input players—such Reuter’s Market Light and TCS’s as fertiliser, pesticide, and seed mKrishi are examples. These educa- companies—will strengthen the tion and advisory services, available agricultural supply chain. That could through mobile apps, help farmers reduce costs of inputs for farmers make informed decisions and have and give them easier access to inputs, been implemented in more than all of which translates into better 17 states across India. performance on agricultural yield.

Future of India 41 Figure 2.4: A digital food platform

Seed companies Enables input players to scale and increase retail presence Pesticide/fertiliser Pre-harvest Equipment companies Farmer posts requirement, platform broadcasts Platform it to relevant players, input players send quotes, Data analytics and farm advisory farmer buys Other input players Farmer sends information to the platform (e.g. crop pesticides, soil quality), platform aggregates and sends to input players, enables better research and product development

Farmers

Farmer posts quantity, grade of produce and Market buyers minimum selling price, platform broadcasts it to relevant buyers, buyers post their bid, Financial institutions Post-harvest farmer sells and gets paid online Food processors Platform Can also act as a commodity exchange Supply-chain players Other post-harvest players Increases farmer income, which can improve farm productivity through mechanisation, etc

Source: PwC analysis

Strengthen research The sector also has an opportunity The agricultural sector offers a rich Strengthening research in fields to develop an integrated digital array of opportunities for private- such as biotechnology, especially platform comprising pre- and sector companies to help India genetically modified (GM) seeds, post-harvest modules. (See Figure achieve its agricultural yield targets. could improve crop yield and 2.4.) Such a platform could create a Such companies could come from resistance to pests and drought. marketplace in which players across sectors ranging from IT, retail, and However, debate persists regarding the value chain can interact with biotechnology to fertilisers and the impact of GM seeds on human one another. It could provide input farm-equipment manufacturing. health and soil quality. India thus players with opportunities to scale Higher crop yield will support needs to invest in research on the and to increase their market access inclusive growth and improvements use of GM seeds in food crops to while enhancing the transparency of in economic status for the many make them as successful as Bt transactions, which lets farmers buy Indian citizens still dependent on cottonIV has become in India.19 and sell at the best possible prices. agriculture to make a living.

IV Bt cotton, produced by Monsanto, is a genetically modified variety of cotton that produces an insecticide.

42 PwC Vector four: Figure 2.5: Household savings as a percentage of GDP in India Access to banking services Access to finance promotes eco- Significant rate of gross national Falling share of financial savings nomic growth and reduces poverty savings in India (% GDP) among households remains a concern and inequality. Gross national savings in India have constituted Germany 25% 2004 48% 52% 30% and more of GDP since 2004. However, since 2010, the share of US 16% 2008 52% 48% household savings entering the Brazil 15% formal financial system has fallen 2010 48% 52% with increased demand for physical assets such as gold and real estate.20 South Korea 32% 2012 31% 69% (See Figure 2.5.) China 51% In India, only 35% of adults had 2013 32% 68% access to a formal bank account as India 30% Financial assets Physical assets of 2011-2012.21 Thus, a significant percentage of the country’s popula- Sources: Planning Commission, Government of India Sources: Planning Commission, Government of India tion is vulnerable to exploitation from people involved in informal channels that fall outside regulatory control, such as money lenders or operators of fraudulent savings schemes. As of 2013, the share of informal rural credit ranged from 77% (to near-landless farmers) to 32% (to farmers with landholdings of 10 hectares and more).22 Also, 57% of families surveyed across major migrant corridors crossing states within India claimed to prefer informal channels for managing remittances, whereby workers send portions of their wages to family members living in other states or regions of India.23

Our vector for the financial services sector envisions expanding the The financial sector is important because it enables percentage of Indians who have access to formal banking services other sectors. To have the most effective financial sector, from 35% in 2012-2013 to 70% in we need to move more assets from gold and black 2024 and 90% in 2034. By access, we don’t just mean the percentage real estate into productive areas. of people who open an account; we Naina Lal Kidwai mean the percentage who actively HSBC use banking services—namely, making at least one deposit or with- drawal each month.

Future of India 43 Figure 2.6: The power of technology-enabled banking

Operational costs (in INR) per transaction Number of ATMs per million for Indian banks 50 3,000 2825 48

40 2352

2,000 30

25 1188 20 1070 Winning Leap 1,000 18 Target 10 420 375 8 120 4 34 0 0 112 Branch Phone ATM Phone Online China Germany South Korea India (call (IVR) center) 2007 2012 Sources: World Bank, ICRIER, PwC analysis

Tackling India’s financial-inclusion almost 600,000 villages throughout Our research shows that tech- challenge will require multiple the country. The business-cor- nology-led infrastructure such as interventions. Examples include respondent model has extended automatic teller machines (ATMs) easing regulatory norms for bank- access to almost 150,000 villages. could significantly lower capital customer acquisition, improving Yet it hasn’t led to more active use of requirements and transaction financial literacy, designing suitable accounts, because banks have had processing costs for banks seeking banking services to meet different difficulty incentivising agents and to foster greater financial inclusion. consumer needs, and expanding the monitoring their performance.24 (See Figure 2.6.) Banking customers penetration of banking infrastruc- would be far more likely to use per- ture into rural areas to make access Quadrupling branch density from manent, convenient access points easier and more affordable for 2014 through 2034 could help such as ATMs to conduct banking account holders. In the sections that India improve access to banking transactions, rather than having to follow, we explore several ideas for services. But doing so would require wait for agents to visit their villages. making such improvements. major capital investments from banks, especially in rural markets.25 The other key factor India needs Build branchless infrastructure Moreover, branch density doesn’t to address is the level of Know- Historically, Indian banks seeking necessarily correlate strongly with Your-Customer (KYC) compliance to grow have favoured expanding financial access. For instance, China required to open bank accounts, their number of brick-and-mortar and Germany boast much higher which increases acquisition costs branches over deploying branch- financial inclusion than India in for banks and excludes many less technology and have relied terms of the percentage of people citizens from the financial system. on business correspondents (i.e. actively using bank accounts (64% Regulatory shifts such as easing third-party agents) to reach custom- and 88%, respectively)—but both KYC norms for low-value accounts ers in remote villages. However, countries have comparable branch could maximise the reach of finan- the gap between urban and rural density to India (77 and 139 cial services for any given level of branch density remains substantial, branches per million, versus India’s infrastructure penetration. with only 38,000 branches serving 114 branches per million in 201226).

44 PwC Exploit national platforms and new welfare payments through multiple of customer identity. Such capabili- partnership models channels including cash cards, ties could also include management Non-traditional partnership models ATMs, rural bank offices, postal of partnerships that banks will need could further improve financial- services, pawnshops, and mobile to forge to implement and get the services penetration in India. payment options.30 most from digital solutions in the Through such models, participants coming years.32 share infrastructure-development Business-model innovations could costs, lower market-entry risks, also be combined with national Use next-generation digital channels and combine their strengths to platforms such as the unique iden- Use of digital channels such as improve consumer access to ser- tification number (or Aadhaar) to mobile and online banking could vices in remote areas. Such models reduce compliance costs for service greatly improve financial inclu- have succeeded elsewhere in the providers. This could reduce cus- sion. Mobile money solutions have world.27 Take Mzansi accounts in tomer acquisition costs by as much as gained acceptance in markets such South Africa. These no-frill bank 40%, compared with the face-to-face as Kenya and Bangladesh. But accounts were launched jointly by identification procedures and paper- converting over-the-counter trans- the country’s four largest private based processes used extensively actions into accounts enabling a full banks and the state-owned Postbank. today.31 And applicants would not suite of banking services remains More than 6m accounts were opened have to provide multiple identifi- elusive even in those markets. The during 2004-2008, improving pen- cation documents, a requirement challenge facing nascent markets etration from 46% to 63%.28 Brazil’s that prohibits many from entering such as India must be addressed at banking-correspondent model is the financial system. The reach more fundamental levels. Potential another example. Through this of the Aadhaar platform has been solutions include creating low-cost model, the retail banking presence significantly extended; it covered service models that offer incentives was expanded through partnerships some 600m registered members by to multiple industry participants with nonbanking entities such as early 2014. Still, banks must create (such as telecom providers, banks, local grocery stores, drugstores, and the infrastructure and develop the and payment providers), improv- gas stations—backed by extensive capabilities needed to adopt and use ing digital literacy, and expanding use of IT systems.29 The Philippines real-time digital solutions such as broadband and digital banking adopted a PPP model to deliver e-KYC and biometric authentication infrastructure within the country.33

45 Figure 2.7: Advantages of digital payments

120 Bubble sizes indicate $ 100 China consumption impact on GDP because of growth in card usage (2008 and 2012) 80 The Winning Leap UAE 60 South Africa

40 Brazil Russia 20 Korea UK France India Germany US Shift in share of non-cash instruments (index 1-100 scale) 0 20 30 40 50 60 70 80 90 100 Slow cash rich markets Rapid transition markets Mature cashless markets Percentage share of non-cash instruments in consumer payments (2012) Sources: MasterCard Advisors (2013); VISA-Moody Analytics (2012); IAMAI

China’s GDP is estimated due to consumption emanating from growth in payment to have grown by $375 bn card usage between 2008-2012

Emerging technology solutions Vector five: unorganised retailers, consumers, such as solar ATMs can help, by Share of organised retail and the government. Besides ben- slashing ATM setup costs by almost India is one of the fastest-growing efiting farmers, manufacturers, the 50%.34 Furthermore, credit-scoring retail markets in the world. The government, unorganised retailers, models based on online and mobile nation boasts a population of and logistics providers, growth in usage data could make it easier for 1.25bn. It also has an emerg- organised retail will create more banks to evaluate potential custom- ing-middle and middle class jobs available to people with lower ers’ credit risk.35 Examples include (households earning skill levels. Currently, retail employs M-Shwari in Kenya, a savings-and- between INR 150,000 and INR up to 40m people42,43,44. If the sector credit product from Safaricom and 850,000 per year) of 640m poised is strengthened, it could produce Commercial Bank of Africa (CBA), to reach 900m in 2021.38 India’s 10m additional jobs in the next and an online credit model adopted retail industry could see a CAGR of ten years.45 by AliFinance in China. 10% over 2012-2020, growing from US$500m to US$1tr in that time- We envision India boosting the These and other next-generation frame.39 Experts foretell a future share of organised retail from 8% of solutions could help India move when an INR 1,000 increase in per total retail in 2012 to 30% in 2024 toward a cashless economy. Growth capita consumption could improve and 50% in 2034. We don’t mean of 5% in cashless transactions could GDP by 2 percentage points.40 to suggest that unorganised retail help save more than INR 500 crore channels will lose their relevance in annually for the national economy However, 92% of India’s total retail the local communities they serve. through lower transaction and market remains unorganised,41 Nor do we mean that organised administrative costs.36 And as China dominated by local shops owned by V Unorganised retailing refers to the traditional formats V has discovered, digital payments independent private individuals. of low-cost retailing; for example, local shops, owner- operated general stores, convenience stores, could also drive private consump- (See Figure 2.8.) Promoting growth hand carts, and pavement vendors (as defined by the tion, further boosting India’s GDP.37 of organised retail will strengthen Parliamentary Standing Committee on Commerce, 2009). (See Figure 2.7.) India’s consumption ecosystem—which includes producers,

46 PwC Figure 2.8: India’s unorganised retail sector

% penetration of Share of organised retail to total retail organised retail 100% 2007 15 337 4% 80% 85% The Winning leap 2008 19 363 5% 80% by 2034 55% 60% 2009 22 390 6% 55% 2010 27 421 6% 40% 40% 35% 2011 33 455 7% 20% 25% 20% 2012 41 496 8% 15% 8% 0% 0 250 500 US UK Revenue US$ billions China India Thailand Malaysia Indonesia Organised Unorganised Philippines South Korea

• The retail industry is expected to grow at 10% to ~US$ 1tr by 2020. • Organised retail is expected to grow 24%, at a higher rate than overall Indian retail sector. • Even at 24% CAGR, organised retail will account for less than a third (30%) of the total retail market by 2024.

Sources: PwC analysis, press articles

47 retail in India will have to mirror retail in India. techniques, in exchange for smaller the large formats characterising players’ sourcing specific products the “big box” retailers in more Bring in efficiencies from them. This model combines developed economies. The goal is Organised and unorganised retail the prowess of organised retailing to support the creation of a retail players can partner to improve with the proficiency of neighbour- value chain that improves opera- the overall retail ecosystem while hood stores, creating more value for tional efficiency and that works also generating new benefits for consumers than either sector could with the unorganised sector to their own customers. For instance, provide on its own. improve consumers’ overall retail the unorganised sector could help experience—for instance, by offer- extend organised retail’s reach to Use technology to reach customers ing more choices, more reliable that “last mile,” where independent Real estate in India accounts for supply of popular products, and store owners understand the local 8-10% of retailers’ revenue; in lower costs. The end result would market. Organised players could take contrast, the world average is 4%.46 be an increase in overall consump- responsibility for managing core sup- By leveraging digital retail chan- tion, among other advantages. (See ply-chain components that require nels (e-commerce), retailers could Figure 2.9.) Below, we summarise hefty capital expenditures. They spend less on real estate while also follow-on improvements that will could also help unorganised players reaching more customers in tier-2 come from strengthening organised improve their stores’ ambience, pro- and tier-3 cities. Some leading vide IT systems, and educate smaller e-commerce players in India, such players on basic management as Jabong and Myntra, derive

Figure 2.9: Benefits of strengthening organised retail

Increases tax inflows for Reduces inefficiencies the government in food supply • Significant challenge of tax collections • Farmers integrated into modern from the unorganised sector retail thereby removing several • Organised retail players are generally layers of intermediaries large tax payers • Reducing wastage • Organised retail also helps increase • Farmers to get a fair value for indirect tax through development of their produce and a stable income related sectors (warehousing, t P • Improvement in quality of produce logistics, etc) en ro d m u • Contract-farming and cooperative • State VAT revenues will rn c e e models can be adopted for increase as modern v r o partnership retail grows G

Possible impact areas of organised retail

l i a t C e Improves quality o r Improves n d of life s e unorganised retail u s m i • Greater choice of products e an • India’s large retail sector needs r rg and can accommodate both • More competitive prices— Uno supply-chain efficiencies and organised and unorganised retail greater competition • Unorganised retail can source food • Better quality of products and non-food items, essential for operations, from cash-and-carry • Improvement in customer providers, benefiting from bulk service—policies and staff behaviour discounts • “Lifestyle parity” with developed • Unorganised players can become markets for consumers in India franchise partners for modern trade players’ neighbourhood format

Source: Winning in India’s retail sector, PwC report 2012

48 PwC Figure 2.10: Share of value-added manufacturing nearly 50% of their revenues from tier-2 cities.47 Low and lower Upper Increasing penetration of Internet middle middle subscribers, smartphones, credit income income High income and debit cards, and innovative pay- 0.75 ment models (such as mobile wallet and cash on delivery) are creating a growth environment for digital H retail. We project that digital retail 0.50 could account for 50% of the organised retail market in 2034, resulting in significant reductions in capital expenditure for retail space. 0.25 L New technologies such as virtual M Share in value-added (%) walls and virtual mirrors will further help improve the retail customer experience, thereby 0 encouraging greater consumption. 10,000 20,000 30,000 40,000 Virtual mirrors let shoppers “try on” GDP Per Capita, 2005 (PPP$) clothes and accessories virtually H High technology M Medium technology L Low technology before making buying decisions.

Source: United Nations Industrial Development Organization Virtual walls help customers scan barcodes for items on an electronic wall, using their mobile phones, and place orders with retailers. Tesco in South Korea was an early adopter of this technology. In India, HomeShop18 has launched India’s first virtual-shopping wall. Scan N Shop at New Delhi’s international airport uses a similar technological interface.

Vector six: Value-added manufacturing The manufacturing sector will play a key role in India’s development, as the nation grows more urban and industrialised, by providing jobs to a broad spectrum of work- Innovation, design, and manufacturing go hand-in- ers and spurring income growth across different segments of the hand. The closer you can co-locate these operations, population. Shifting focus from the more effective is the leverage you can get. It is a low- to high-tech industries will little theoretical to talk about design and innovation prove critical. Countries that have boosted their per capita GDP have in one part of the world and manufacture in another. done so by making this shift. (See Banmali Agrawala Figure 2.10.) Take South Korea, GE whose per capita GDP grew 20-fold from 1963 through 2013.48 The nation achieved this growth in part by developing the manufacturing capabilities essential for high-tech

Future of India 49 Figure 2.11: A path to improved manufacturing competitiveness in India

Corporate sector Government 25%

15% Manufacturing Develop Increase ability Increase Implement competitiveness technological to meet the labour regulatory prowess demands of productivity policies related Manufacturing %GDP and skills the empowered through skill to land, labour, 0 customers development environment 12% 32% Value added %GDP Source: PwC Analysis

Figure 2.12: Technology importing in South Korea 40%10% $0.52 $26.3 53.5%24.3% in 1981 in 1990s billion (1981) billion (2005) in 1981 in 2005

Ratio of technology imports R&D investment Government spending on R&D to business R&D

Source: Issues in Science & Technology - Excelsior: The Korean Innovation Story

industries, which now dominate competitiveness. Ideas for doing so They receive broad-based (i.e. basic its manufacturing landscape. follow. (See Figure 2.11.) to advanced) training and gain the skills and knowledge needed to Our research focuses on share of Remove regulatory hurdles practise a trade. Those completing value-added manufacturing as a and focus on skills the training qualify for jobs in about percentage of GDP. This differs from For India to achieve its targets on 355 recognised occupations that percentage of GDP that is derived the value-added-manufacturing require formal training. from manufacturing. Value-added vector, it needs to first remove manufacturing denotes the percent- regulatory hurdles that have made Import technology to strengthen age of value addition achieved in doing business in India difficult. manufacturing capabilities manufacturing and indicates the That includes simplifying policies Importing foreign technology level of sophistication in manu- related to land, labour, and the can help Indian manufacturers facturing processes. Percentage of environment and providing single- strengthen their capabilities. In GDP from manufacturing denotes window clearances for obtaining the 1960s and 1970s, South Korea the proportion of manufacturing business permits. Strengthening began enhancing its domestic in the overall economy. In India, manufacturing skills training will manufacturing capabilities through value-added manufacturing stands also prove crucial. For example, in methods such as reverse engineer- at 12% of GDP today.49 Our analysis Germany, vocational education and ing and foreign licencing. (See shows that value-added manufac- training (VET) is seen as a pillar of Figure 2.12.) At the same time, turing can grow to 20% by 2024 the nation’s education system. Two- the South Korean government and to greater than 25% in 2034 if thirds of German youth undergo and private sector invested in the India can step up its manufacturing vocational training in both the capabilities needed to absorb the workplace and vocational schools. new technology. Indian companies are making strides in this direction through joint ventures, licence

50 PwC arrangements, and acquisitions. But factors on automobile frames and expected increase in urbanisation, they will need to step up the pace to use the resulting insights to manufacturing, and mechanised to help the nation reach the vector design more robust frames. India agriculture. India lags behind its target we’ve proposed. With the needs to enhance such capabilities global counterparts in per capita government’s help, business can to “move the needle” toward power consumption, at roughly 700 do so by increasing investment in value-added manufacturing. kilowatt hours (kWh) for 2013; in research and development (R&D), Brazil and Thailand, the number with the goal of ultimately reducing However, this doesn’t mean that is 2,400 kWh.53 Our analysis and dependence on technology imports. India should neglect its low- and sector experts suggest that India medium-technology industries. could increase access to power for Make structural shifts in The bulk of job creation will happen more than 300m additional people manufacturing in these sectors. But in the short by 2034, with annual per capita As Indian manufacturers shift their run, India needs to start exporting consumption of 1,800 kWh for those focus to high-tech industries, they finished goods. For example, while connected to the grid. will need to invest in R&D and the top two exports from India to develop new technological skills. China were cotton yarn and iron To achieve this feat, India will Our analysis shows that the share ore, China’s top two exports to India have to tackle a number of chal- of R&D in India’s GDP will have to were electronic goods and electrical lenges related to fuel supply, power grow from its current 0.8% to 2.4% machinery, indicating these growth generation, transmission, and in 2034 to achieve the desired gains economies’ different positions in distribution and will need an addi- in value-added manufacturing.50 the manufacturing sector.51 tional 450 gigawatts (GW) of power supply. Despite having the fifth- Global giants like Toyota have Vector seven: largest coal reserves in the world, invested heavily in R&D to reduce Access to power India is the world’s third-largest the lead time from design to In India, more than 300m peo- coal importer, with nearly 59% of production. For example, Toyota’s ple today don’t have access to its power plants coal based.54 The central R&D labs have developed electricity.52 And the need for nation must mitigate its dependence simulation models to predict the power will only grow, given the on coal to avoid resource shortages impact of noise, wind, and other

51 and environmental challenges. be financially feasible in the near 100 “showcase” cities receiving Diversifying fuel sources could help. term for India. However, compo- distributed power.59 nents of smart-grid solutions—such The rural-urban divide in access to as integrated communication Vector eight: power also sounds a loud warning systems, sensing and measurement Managed growth bell. In 2014, almost 31,000 instruments, and smart meters— of urbanisation villages in India had no access to could help improve efficiency, reduce As more Indian citizens migrate electricity.55 Moreover, per capita costs, balance demand and supply, from rural areas to cities teeming consumption in rural households and reduce wastage and loss of with industrial and service-related is estimated to be only one-third power. Such tools could also help activities, the resulting urbanisation of average consumption in urban consumers track and optimise their will drive economic growth for the India.56 Below, we present ideas for energy usage, thus reducing their nation. Cities will become centres of addressing India’s power-related utility bills. future investment and job creation. challenges. With expansion of city boundaries Another idea for improving effi- and creation of new urban centres, Move toward a diverse energy mix ciency in the power system is to India’s urban population is pro- Given the limited availability of coal encourage private-sector par- jected to soar from 400m in 2013 to and the extensive carbon emis- ticipation in power retail. Utility 650m in 2034.60 sions from thermal power plants, customers want a better experience, India will need to shift its power- including more pricing options, But to date, growth in India’s urban generation capacity toward noncoal and private sector companies could centres has been largely unplanned. sources. Only then can it meet the satisfy this unmet need. India has Going forward, Indian cities will increased need for power in an envi- historically invested more in power have to fill infrastructure gaps to ronmentally sustainable way. Other generation than power distribution. handle significant imminent growth developed nations that depend If private companies handled more in the need for housing, transporta- heavily on coal—such as Germany distribution, the entire value chain tion, public utilities, educational and South Korea—are working to could be strengthened. institutions, healthcare services, reduce the share of coal in their and recreational facilities. The con- power generation and incorporate Deploy advanced technologies tribution of India’s urban economy more renewable and nuclear energy India’s power sector has an oppor- to national GDP grew from 38% in sources. China, whose power is gen- tunity to skip a generation of 1970-1971 to 63% in 2009-2010 erated mostly by coal-based plants, technology. Consider the case for and could exceed 75% by 2030 if is experiencing the consequences distributed power. Investing and the nation addresses its urban infra- first-hand, including a high level of developing capabilities in advanced structure challenges.61 Below, air pollution that’s raising alarms storage and distributed power could we offer some ideas. around the world. go a long way toward addressing the challenge of rural power distri- Strengthen transportation Encourage private participation in bution in India. Distributed power infrastructure transmission and distribution solutions generate power at or near With rising urbanisation in India, As much as 24-30% of power gener- the point of use and can be installed traffic movement across 87 cities ated is lost in transmission and quickly, sometimes in weeks com- could more than double from a distribution, including 15% lost to pared with years for traditional 2007 baseline of 229m trips to theft.57 Use of digital information centralised power generation and 482m trips in 2030. Limited adop- and communications technology to distribution setup. Distributed tion of public transport and rapid automate information gathering can power also enables a local level of growth of private-vehicle ownership help reduce such losses, ultimately control, management, and demand are contributing to rising traffic con- improving efficiency and reliability planning. In China, the govern- gestion, greenhouse-gas emissions, in production and distribution as ment has defined policies aimed at and traffic-related fatalities. The well as lowering costs. As an exam- increasing the share of distributed business-as-usual scenario projected ple, the US Department of Energy power. By 2015, China aspires by the government assumes that, estimates that smart grids in that to have 1,000 distributed power owing to increased congestion, aver- nation could save US$46-$117bn projects fuelled by natural gas, a age speeds on major city corridors over the next 20 years.58 solar-power capacity of 10GW, and could decrease from 26-17 km/hr in 2007 to just 8-6 km/hr by 2030, Our experts and analysis suggest that with emission levels rising seven a comprehensive smart grid may not

52 PwC times in that time frame. In 2011, areas. Consider the Ashray hous- public transport accounted for only ing project in the Shapar Industrial 27% of total urban trips in India; Zone outside Rajkot, Gujarat. While that number must increase to 60% seeking potential locations, project if India is to manage the urban developers weighted the advan- growth expected over the next tages of the affordable real-estate two decades.62 prices in the area, the proximity to industrial units offering jobs, and Define new policies and develop the availability of adequate road peri-urban infrastructure connectivity and infrastructure such Policy changes could further help as hospitals and schools. Offering India manage imminent urban housing units priced between INR growth. For instance, if the gov- 300,000 and INR 500,000, the proj- ernment provided subsidies on ect sold almost 70% of its units on land purchases, cheaper project the first day the units came up for financing, and faster construction- sale. Moreover, during the planning project approvals, housing prices stage, project developers had con- could decrease considerably. ducted focus groups with industrial Interventions such as congestion workers in the area to gain insights pricing policies, restricted access, into their needs and incorporated and parking-management policies those insights into the project’s could also be explored to manage design. The result was high demand traffic congestion. In addition, there for the units, even with minimum is a strong need to strengthen city- marketing investment.63 level administrative bodies in India and give them greater autonomy to Use technology to manage raise infrastructure development near-term demand funds. Building capacity or devel- India could use technology to oping skills within such bodies to address infrastructure deficits in improve planning and execution of the near term. Countries such as urbanisation initiatives can also be Japan have adopted ICT solutions given top priority. to manage urban transport congestion. India could also adopt systems Companies and government agen- using real-time data collection and cies involved in construction outside analytics to optimise traffic-signal tier-2 and tier-3 cities and along patterns in response to changing industrial corridors could benefit traffic volumes. Procuring these from the lower land costs in such technologies is easy for India, but

Future of India 53 ensuring that they are implemented Figure 2.13: % GDP growth per 10% rise in penetration by type of access and managed well will prove more challenging, owing to the lack of .43 managerial skills within city-level Fixed .73 administrative bodies.64 telephone

.60 Similarly, prefabricated home- Mobile construction models could support telephone .81 rapid scaling of low-cost housing. Offsite construction includes use of .77 Internet prefab panels and advanced mate- 1.12 rials such as autoclaved aerated VI concrete bricks. Such materials 1.21 Broadband have relatively higher capital costs 1.38 but can deliver 60% savings on construction time and 40% savings on labour costs. Although prefabri- 0.0 0.3 0.6 0.9 1.2 1.5 cated construction has been popular High-income Countries Low- and middle-income Countries in developed markets, its entry into Sources: Broadband Strategies Toolkit, World Bank India’s residential sector remains nascent; wider adoption will likely come with increased buyer awareness and demonstrations of business viability to developers.65

Integrate public transport and rental housing marketing campaigns on the down- India would also need to sig- sides of relying on private vehicles nificantly modify its existing compared with public transport.66 approaches to address its urbanisation challenges. Creating integrated Similarly, in housing, rental-based transportation networks such as models can efficiently cater to those developed in Germany and members of economically weaker shifting focus from ownership to segments of the population,VII many rental-based housing models would of whom can’t afford home owner- constitute good first steps. ship. They can manage only small monthly rent payments, and they Transport alliances between carrier may not have access to mortgage companies have gained momentum loans. In some countries—such as across Germany, aimed at creating the US, UK, and Germany— a more efficient and convenient governments and private players public-transport network. To take have worked to provide adequate part in these alliances, different ser- rental housing, with such homes vice providers (such as bus, rail, and constituting 30-60% of total ferry operators) had to collaborate to housing stock. However, owing to make it easy for travellers to switch rent-control legislation and taxation from one mode to another. This policies in India, private developers greater interoperability has encour- have steered clear of getting into the aged more city dwellers to use public transport. Governed by extensive VI Autoclaved aerated concrete (AAC) is a lightweight, precast construction material. AAC blocks are three to contractual agreements, these alli- four times lighter than traditional bricks. ances created an independent legal VII The economically weaker section of Indian society includes households earning less than INR 60,000 a entity to build and manage a coor- year (as of 2011-2012). The government later revised dinated timetable and a common the definition to include households earning less than INR 100,000 a year in 2012-2013. fare and ticketing system. Alliance partners have also conducted joint consumer research on and designed

54 PwC rental-housing business, because it’s impact on growth. Take digital to the masses just not profitable enough. Policy India boasts the world’s third-larg- interventions would have to be initi- Digital technologies could shape est online user base, but Internet ated for this to change.67 India’s growth story in four ways. penetration, at 15%, ranks far below First, they could improve sector the global average of 38%. India’s Vector nine: productivity by enhancing access to Asian counterparts (such as South Improving digital connectivity information and process efficiency. Korea, Brazil, and China) have A strong digital infrastructure will Second, they could boost consump- made major strides in the past two help spur efficient growth across tion by providing consumers with decades toward improving online multiple sectors in India, such as greater access to products and ser- connectivity. China crossed the education, healthcare, retail, and vices and giving rise to entirely new world average in 2009, and South financial services. Academic studies consumption categories. Third, they Korea reached more than 80% in have further established a positive could create new jobs. And fourth, the same year. (See Figure 2.14.) correlation between GDP growth they could enable implementation and increase in the penetration of of e-government solutions, lowering India can benefit by achieving more digital technologies. (See Figure the cost of government services and than 50% digital penetration in 2.13.) This correlation is greater ensuring that services are delivered 2024 and 80% in 2034. However, in low- and middle-income coun- to the intended beneficiaries.68 to make this leap, the country will tries such as India, with broadband Below are ideas for enhancing have to design significant supply- expected to exert the most digital connectivity in India. and demand-side interventions,69 such as making broadband the

Figure 2.14: The Winning Leap: Expanding Internet penetration to more than 50% by 2024; 80% by 2034

100

The S K Winning 80 US Leap target G Though the 60 online user base in India crossed 200m in 2013 (3rd largest worldwide), significantly low 40 B online penetration W remains an area net users per 100 people C of concern. Inte r 20

0 1995 2000 2005 2010 2013

S K South Korea US United States G Germany B Brazil C China W World I India

Source: World Bank

Future of India 55 Figure 2.15: Global fixed and mobile broadband penetration

Fixed broadband penetration Rank among Mobile broadband penetration Rank among per 100 people (2012) 183 nations per 100 people (2012) 170 nations South South 37.6 05 106 04 Korea Korea

Germany 34 09 US 74.7 09

US 28 20 Germany 41 40

China 13 55 China 17.2 75

India 1.1 India 4.9 122 106

World 9.1 World 22.1

Source: Broadband Commission

primary mode of Internet access India has to close the gap between and closing gaps in urban-rural urban and rural telecom penetra- connectivity, as discussed below. tion to enable last-mile connectivity for digital services in its hinterlands. Manage the supply side—by making Although India’s rural areas account broadband the primary mode of for almost 70% of its population, Internet access country residents represent only India must improve accessibility to 42% of telecom subscriptions.71 high-speed broadband services. A (See Figure 2.16.) majority of Internet users in India (more than 90%) connect at 2G High spectrum costs and industry speeds suitable only for low-end debt levels have restricted Indian applications such as messaging or telecom players’ ability to expand text downloads. (See Figure 2.15.) their capacity. Moreover, policy barriers such as high right-of-way costs Mobile broadband is widely con- have constrained the expansion of sidered the preferred mode for fixed networks for last-mile connec- improving connectivity in emerging tivity. India deployed only 14m fibre markets such as India that already km in 2013; China deployed 125m have high mobile penetration. that same year.72 However, India also needs fixed networks to adequately support However, service providers can its rapidly growing mobile traffic. test low-cost alternatives being According to Cisco Systems’ esti- piloted worldwide and evalu- mates, almost one-third of mobile ate their potential for wide-scale traffic worldwide was offloaded deployment in India. Examples

to fixed networks in 2012. Hence, include the use of “white space” VIII The Mawingu Project provides low-cost broadband India must establish fibre-optic wi-fi networks (unused, unlicensed to remote areas in Kenya, using unlicensed wi-fi spectrum and unused TV bands. Microsoft is working infrastructure for both backhaul spectrum) as part of the Mawingu with the Indian Institute of Technology at Powai and 70 VIII RailTel Corporation of India to understand and last-mile fixed connections. Project in Kenya and the use of commercialisation prospects in India. satellite broadband technology to IX Hughes India has set up more than 10,000 Internet Manage the supply side—by closing enable enterprise-level connectivity kiosks across urban and rural India using satellite broadband technology, providing a lower-cost IX gaps in urban-rural connectivity in a few remote markets in India . alternative to terrestrial broadband.

56 PwC Figure 2.16: India’s urban-rural connectivity gap

Telephone connections per 100 people-teledensity

200 The gap between urban and rural telecom

150 U connectivity has widened significantly over the past ten years 100

O More than double rural 50 tele-density, reaching R 100 by 2034

0 2003 2004 2005 2006 2007 2008 2009 2010 2011 Jul 12 Jul 13

U Urban India O Overall R Rural India The Winning leap

Source: Telecom Regulatory Authority of India

57 Regulatory interventions will be entry-level broadband plan in India needed to scale up such options costs 5.5% of average per capita in nationwide.73 income, as compared with 1.7% in developed markets (0.5% in the US, Manage the demand side— 1.1% in Germany). A major factor by improving awareness, behind this is the poor state of data- affordability, and applicability centre infrastructure in the country, Availability of digital connectivity as a result of which most content is alone will not guarantee greater hosted on servers outside India.75 adoption of such technologies. To Low-cost mobile devices also bolster adoption, India needs to need to be developed, given that improve awareness and increase the Internet is being increasingly the affordability and applicability of accessed from smartphones.76 online services. Computer literacy is estimated at approximately 14% in Last, the country needs digital rural India. Moreover, nearly 70% of content and solutions that address non-users of computers in rural India the needs of a wide range of users, have never heard of the Internet. including elderly individuals, Staff operating rural Internet centres women, and people running or also need to be suitably trained to working in small- and medium- play an advisory role and suggest size enterprises in rural India. solutions to the uninitiated.74 Multilingual content will be required to penetrate diverse regional markets For wider adoption, there is a throughout India. Indeed, find- need to create low-cost solu- ings from a study conducted by the tions—Internet services and devices Internet & Mobile Association of to enable mass adoption. An India suggest that almost 43% of noncomputer users in rural markets

58 PwC Fig 2.17: Correlation between highway connectivity and growth

13 UP 12 The Winning Leap target area 11 Maharashatra Goa 10 Tamil Nadu Gujarat Bihar 9 AP Karnataka Kerala owth (%/yr) 2005–12 8 Jharkhand India MP WB Uttarakhand 7 Punjab

State GDP g r J&K 6 Orissa HP Assam

5 0 20 40 60 80 100 120 140 160 National and state Highway km per 1,000 sq km land area High-performing Low-performing Catch-up Average states states states

Sources: PwC analysis, RBI Statistical Yearbook, MORTH

and 13.5% of those in urban markets in India are significantly higher from manufacturing facilities to might start accessing and using the than in other countries: 13% of GDP dealerships and to move automotive Internet if content were made versus 7-8% of GDP in developed components from suppliers to available in their local language.77 countries.79 Our major metric for manufacturing facilities. If logistics physical connectivity is logistics cost costs could be brought under as a share of national GDP, which control, Indian automotive players Vector ten: we believe India can decrease to 8% would be able to free up more of Improving physical connectivity by 2034 if the country addresses their revenues to invest in more A nation’s physical connectivity— challenges in its road, rail, air, and strategic activities, such as R&D. its network of transportation and waterway networks. Below are logistics infrastructure—forms the some suggestions for making Optimise freight traffic across backbone of its economy. Robust this leap. multiple modes physical connectivity improves In India, 63% of freight is trans- productivity, creates employment Control logistics costs ported on roadways and 28% is opportunities, and lowers logistics Inefficient and costly logistics transported by rail.81 More than costs. Though India has created new hamper businesses’ growth. For 40% is carried by national high- airports, metro rail networks, high- example, India’s automotive ways, which account for a mere 2% ways, and roads in the past ten years, industry is expected to emerge as of the nation’s total road network.82 much work remains for the country the third largest in the world by As economic growth accelerates in to improve its global competitiveness 2020. But in this industry, logistics India, this concentration of traffic in terms of physical connectivity. costs as a percentage of sales is flows will intensify even further on high—roughly 30%,80 which far the nation’s highways. So perhaps it’s not surprising that exceeds the number in China and infrastructure issues were cited other developed markets. Part Indian states with greater national as a key factor behind India’s low of the problem is that in India, or state highway density have ranking (54 out of 150) in the automotive companies rely heavily performed better in the last seven World Bank’s Logistic Performance on road transport to move vehicles years in terms of their respective Index.78 In addition, logistics costs state GDP growth. States with a

Future of India 59 Page 60: Fig 2.18: Freight-passenger mix on national rail networks

China

United States Russia 2,000,000

Typically, countries with a large land area have higher freight

1,000,000 Argentina traffic on rail network Kazakhstan compared with India passenger traffic

Million tonne km Mexico 100,000 Australia

Japan 10,000 South Korea

10,000 100,000 1,000,000 200,000 Million passenger km

Countries with more than Countries with less than 2m sq km land area 2 mn sq km land area

Sources: PwC analysis, World Bank

well-connected physical infra- Take railways, India ranks fourth Remove institutional roadblocks structure also attract investment, globally in terms of total rail-route to free up operations especially in core sectors such as network distance, but it ranks A study by Transparency manufacturing. (See Figure 2.17.) eighth in terms of freight traffic International India, estimated that carried per km. Its low ranking bribes account for 20%85 of the Other transportation modes—such stems primarily from the subopti- operational expenses (excluding as rail, air, and water—currently, mal freight-passenger mix on rail fuel costs) in logistics. Moreover, don’t provide a viable alternative to networks—meaning that potential multiple road checks account for transporting freight by road. Getting for freight remains fairly untapped, almost 27% of total travel time in freight to ports is difficult because with passenger movement domi- India’s trucking industry. These of poor connectivity to India’s nating freight traffic on the rail inefficiencies have severe cost impli- hinterland. Rail-freight facilities network. (See Figure 2.18.) The cations for freight transportation. are poor owing to lack of flexibility government hikes freight rates The time spent by trucks during in handling varied products and by nearly 3% every year to cross- check-post stoppages roughly to lengthy transit time. Share of subsidise passenger tariffs.84 Other equals the annual labour time inland waterways in overall freight countries with a large land area of 17,000 drivers. traffic—at 0.5%—is lower than have a higher freight-passenger that of the US (8.3%) and Europe ratio owing to cheaper, faster, and The key reasons for the inefficien- (7%) and well below that of global more-efficient freight handling cies are the inconsistent nature peers,83 indicating minimal use of by their rail networks. Moreover, of state tax structures and bottle- inland waterways. India can make most rail terminals in India are so necks in documentation processes. considerable headway in its logistics antiquated that they’re not set up Middlemen and corrupt officials sector if it reduces the load on its to carry diverse kinds of cargo. The only worsen the inefficiencies road network by optimising its upshot is that freight transportation in India’s logistics system. Other freight and passenger traffic across by rail network is inefficient sectors have encountered similar different modes of transport. for Indian businesses. challenges. For instance, corrupt meter readers and bribery have led

60 PwC Infrastructure is the key for the development of the nation. When you have roads, schools, hospitals, water, then people move to those areas and that’s when development happens. You have to get people away from urban areas. You have to develop rural areas and make it an attractive place for people to live. You have to create mini cities, which have to be supported by schools and hospitals.

Keki Dadiseth Unilever

61 to annual revenue losses on the Figure 2.19: Cost drivers in India’s logistics industry order of US$17bn in India’s utility sector.86 Technology-enabled solutions adopted in other sectors— Cost such as smart meters that human beings can’t tamper with—could Unofficial bribes account for 20% of opex excluding fuel costs also be used in the trucking indus- Average Amount try. Similarly, digitisation of travel amount paid documents along with automation Roundtrip distance (km) paid per trip per km of transport-office processes could Delhi-Kolkata 2922 2630 0.90 free up huge amounts of time for truckers to do their real job: driving Delhi-Mumbai 2814 1464 0.52 trucks. (See Figure 2.19 and 2.20.) Delhi-Kanpur 816 871 1.07 Make greater use of third-party logistics providers Delhi-Ludhiana 610 915 1.50 Third-party logistics (3PL)X companies provide logistics and sup- Chennai-Vijaywada 792 917 1.16 ply-chain solutions across functions such as transportation, warehousing, Kolkata-Mumbai 3974 1753 0.44 and inventory management. There’s an inverse relationship between Ahmedabad-Mumbai 1090 710 0.65 logistics costs as a percent of GDP and the share of 3PL in the logistics On road expenses in trucking industry per km (excluding fuel) market.87 By aggregating demand and domain expertise, 3PL players Payment to drivers/helpers 0.69 not only help lower logistics costs but Repair 0.05 also provide higher-quality services. Toll/interstate fee, Octroi, penalties 0.36 Total expense: Indeed, according to the 18th Annual INR 3.5 per km 3PL Logistics Study, 3PL services RTO/Police 0.07 reduced logistics costs by 11% and Loading/Unloading 0.83 inventory costs by 6% worldwide Broker's commission 0.35 in 2014 alone.88 Unofficial bribe 1.21

Currently, share of 3PL in total logistics costs in India is only about 9%. Sources: PwC analysis, Corruption in Trucking Operations (MDRA), Economics of Trucking Industry (MORTH) The number is 50-70% in developed markets. Moreover, in India, 3PL is Time used in only a few sectors, such as automotive, IT hardware, and tele- Time spent by trucks due to check-post stoppages is equivalent to annual labour time of 17,000 drivers com.89 However, as players in other industries begin sharpening their % defaulter vehicles out of checked, by check-post focus on their core business activities, more of them are outsourcing Commercial barriers: 39% Mines and minerals: 27% their logistics activities. As the 3PL Penalty paid*: 710 Penalty paid*: 30 Millions hours: 4.3 Millions hours: 0.6 X A 3PL company is an outsourced provider that manages all or a significant part of an organisation’s Excise: 47% Forest: 49% logistics requirements and performs transportation, locating, and sometimes product-consolidation activities. Penalty paid*: 590 Penalty paid*: 10 Millions hours: 1.2 Millions hours: 4.9

RTO: 28% Total: 36% Penalty paid*: 260 Penalty paid*: 1,600 Millions hours: 50 Millions hours: 61

*INR Crs

Disposition of trip time by activities 62 PwC 50 Running time 47.6 40

30 Check-post stoppage 20 18.5 17.6 7.0 14.4 Breaks 10 3.8 8.1 8.7

Time spent in hours (by activity) 2.9 2.4 5.2 7.2 Traffic hurdles 0 100-499 500-999 1,000 or more Travel km range

Sources: PwC analysis, Corruption in Trucking Operations (MDRA), Economics of Trucking Industry (MORTH) Cost Unofficial bribes account for 20% of opex excluding fuel costs Average Amount amount paid Roundtrip distance (km) paid per trip per km

Delhi-Kolkata 2922 2630 0.90

Delhi-Mumbai 2814 1464 0.52

Delhi-Kanpur 816 871 1.07

Delhi-Ludhiana 610 915 1.50

Chennai-Vijaywada 792 917 1.16

Kolkata-Mumbai 3974 1753 0.44

Ahmedabad-Mumbai 1090 710 0.65

On road expenses in trucking industry per km (excluding fuel)

Payment to drivers/helpers 0.69 Repair 0.05 Toll/interstate fee, Octroi, penalties 0.36 Total expense: INR 3.5 per km RTO/Police 0.07 Loading/Unloading 0.83 Broker's commission 0.35 Unofficial bribe 1.21

Figure 2.20: Time drivers in India’s logistics industry market matures in India, companies Sources: PwC analysis, Corruption in Trucking Operations (MDRA), Economics of Trucking Industry (MORTH) using such providers will benefit from their scale and expertise, in Time such forms as greater efficiency and lower logistics costs. Time spent by trucks due to check-post stoppages is equivalent to annual labour time of 17,000 drivers Better outcomes, less % defaulter vehicles out of checked, by check-post investment: a bottom-up view The solutions suggested in this chap- Commercial barriers: 39% Mines and minerals: 27% ter for each of growth vector could Penalty paid*: 710 Penalty paid*: 30 transform markets in India—increas- Millions hours: 4.3 Millions hours: 0.6 ing market size and growth, sparking innovative products and services, Excise: 47% Forest: 49% reconfiguring competitive dynam- Penalty paid*: 590 Penalty paid*: 10 ics, and giving rise to new types of Millions hours: 1.2 Millions hours: 4.9 businesses. Such solutions will also RTO: 28% Total: 36% redefine the capabilities that companies will need to succeed. Some Penalty paid*: 260 Penalty paid*: 1,600 companies may have to completely Millions hours: 50 Millions hours: 61 restructure themselves to survive *INR Crs and thrive; others may have to partner with organisations from different Disposition of trip time by activities sectors and geographies to acquire or 50 Running time build the required capabilities. Let’s 47.6 consider how this could play out in 40 various sectors. 30 Check-post stoppage The scale and know-how needed 20 18.5 17.6 to implement Winning Leap solu- 7.0 14.4 Breaks tions for each of the ten vectors will 10 3.8 8.1 8.7

Time spent in hours (by activity) 2.9 require Indian companies to radi- 2.4 5.2 7.2 Traffic hurdles 0 cally rethink how they do business. 100-499 500-999 1,000 or more In the next chapter, we take a closer Travel km range look at the capabilities they will

Sources: PwC analysis, Corruption in Trucking Operations (MDRA), Economics of Trucking Industry (MORTH) have to master and the changes they will need to initiate in order to make that transformation.

Future of India 63 Healthcare

Enabling universal access to the fact that the hard infrastructure healthcare through the adoption of is of no use without the people who Winning Leap solutions could help are equipped to operate it. save US$90bn in capital costs in India’s healthcare delivery infra- To meet the desired outcomes in structure. As outlined in the section terms of hard and soft infrastructure on increasing life expectancy at capability, the healthcare delivery birth, non-linear solutions could system will need to add 3.6m beds, achieve the same outcomes more 3m doctors and 6 million nurses effectively and efficiently, with less over the next 20 years. This would investment, if the solutions are require an investment of around designed around preventive US$ 245 billion through traditional care, technology enablement, means. Such an investment would best-practice scaling, and not only put fiscal pressure, but Government support. would be difficult to implement con- sidering the nature and scale of new Currently, the healthcare delivery additions. For instance, over the last system suffers from acute problems decade roughly 100,000 hospital in terms of limited availability of beds have been added annually.13 hospital infrastructure and required If India continues to maintain this workforce. Consider the metric of rate, it will fall short of the Winning beds per 1,000 population: India Leap target by 1.6m beds by 2034. with 1.3 beds per 1,000 people Therefore, it is essential for India is well behind the 3.5 guideline to leverage Winning Leap solutions prescribed by the WHO. Similarly, that are non-linear in nature. The access to doctors and nurses is low country needs solutions that can due to the limited number of medi- help maximise reach and efficacy cal professionals in the country. and are cost-effective by a The issue of doctor and nurse train- quantum margin. ing is even more pertinent, given

64 PwC Improved healthcare delivery infrastructure

The issue Desired outcome Challenges around access, affordability and quality of Improved health outcomes healthcare contributes to low life expectancy with easier access to quality healthcare infrastructure 2014 Per 1,000 people: 2034 80 years 2.5 doctors 5.0 nurses Average life 66 expectancy years 3.5 beds .65 doctors 1.3 nurses 1.3 hospital beds

Achieving outcome by traditional means Building more traditional hospitals Investment in medical education

Addition of 3 million doctors

Addition of 6 million nurses Additional 3.5 million hospital beds required to achieve desired outcomes

Taking the Winning Leap 2.2 million hospital beds required Enabling universal healthcare access through the adoption of Winning Leap solutions could help save US$90 billion in capital costs.

Winning Leap solution enabling alternative healthcare delivery access High volume, low cost Aravind Eyecare prototype

Traditional PPP model hospitals hospitals Government as an enabler

Investment in medical education

Shifting point of care mHealth Preventative care Noncritical patients Technology enabled Early diagnosis of recuperate at home solutions to reduce diseases enables reducing average length stress on hospital timely treatment and of stay in hospitals infrastructure fewer complications Addition of 2 million doctors

Addition of 6 million nurses

The bottom line (over 20 years) Winning Leap Projected Without Winning Leap With Winning Leap Winning Leap savings contribution: 25% investment: % 15% 60 Fierce catch up US$ 245 bn 156 bn 90 bn Significant leap Leapfrog Future of India 65 Power

Winning Leap solutions could of the available US$ 170 billion save approximately US$200bn in the Eleventh Five Year Plan on in capital outlays across power power infrastructure.14 Hence, generation, transmission, and achieving the Winning Leap target distribution, while also ensuring through traditional means would universal and reliable access to require current investments to be power. Diversifying and optimising doubled on an annual basis. India’s fuel sources, focusing investments dependence on fossil fuels for on transmission, strengthening energy generation has also resulted R&D in advanced storage facilities, in high greenhouse emissions, with and bringing in smart-grid solu- India being ranked fourth, behind tion elements are examples of the China, the US and the EU in global non-linear moves that could benefit emissions.15 Moreover, growing India’s power sector. dependence on coal as a source will require increasing imports which To meet the desired outcome of tri- may not be a viable solution for pling per capita power consumption India’s economy in the long run. All to 1800 kWh, India would require these factors strengthen the need an additional 455 GW of installed for Winning Leap methods for India capacity along with significant to achieve its universal access tar- investments and operational gets. Winning Leap solutions could improvements in transmission and save 20% of projected investment distribution (T&D) networks. Using (US$ 200bn) to provide universal traditional means to achieve these access to power while tripling con- targets would require investments sumption on a per capita basis. of almost US$ 900bn over the next two decades. To put things into perspective, India spent only US$ 120bn

66 PwC Universal access to power

The issue Desired outcome While 94% of urban households had access to electricity, only 67% of Improving access to power by connecting rural households had access, compounded with frequent power cuts. 300 million more people while increasing uptime of power availability for consumers. 2014 2034 Access India: 75% China: 99.8% Brazil: 99% India: 100% to power

Access to power No access to power Per capita consumption 672 kwh 3,300 kwh 2,438 kwh 1,800 kwh

Achieving outcome by traditional means

Installed capacity requirement to increase from 245 GW to 700 GW Of every $1 invested in to achieve desired outcomes power generation... $ Hydro Renewable Thermal .35 .35 Nuclear Transmission Distribution Transmission + distribution 2% 17% 12% 69% losses reduced by 2034

Existing electricity generation mix 24% 4 14%

Taking the Winning Leap Winning Leap solutions could save 20% of projected investment to provide universal Of every $1 invested in access to power while tripling consumption on a per capita basis. power generation... Changing energy mix towards non-conventional source

Hydro Renewable Thermal .50 .50 Transmission Distribution Nuclear Smart grid solutions To limit technical and 7% 15% 19% 59% non-technical losses

Installed capacity requirement to increase from 245 GW to 540 GW to meet winning leap targets. 24% 4 8%

Increased investment in transmission and distribution Generated power saving that are currently lost due to transmission and distribution capacity bottlenecks Advanced storage facility Ensure optimal usage based on time and location of peak demand

The bottom line (over 20 years) Winning Leap 8% Projected Without Winning Leap With Winning Leap Winning Leap savings contribution: 17% investment: Fierce catch up 75% US$ 900 bn 700 bn 200 bn Significant leap Leapfrog Future of India 67 Education

In the education sector, instead do not have usable toilet facilities of adding only traditional brick- which results in lower retention of and-mortar facilities, Winning female students. Such an outcome Leap solutions involve online and would effectively mean an invest- offline learning channels, varying ment outlay of US$ 535bn by 2034. the mix across levels of schooling. While addition of brick and mortar For instance, technology-enabled infrastructure will be effective in solutions are well suited for higher addressing the enrolment ratio, grades and vocational education, improving the quality of education while the brick-and-mortar format would require pervasive dissemina- (backed by quality infrastruc- tion of quality content and teaching ture) is best suited for elementary standards. However, technology can education. Overall, Winning play a pivotal role in achieving both Leap interventions could help these targets – of enabling greater save US$175bn over the next two accessibility and improving the decades, thanks to lower upfront quality of education. capital costs as compared to traditional schools.

To meet the desired outcomes of improved enrolment, India will need to add another 500,000 schools with a shift in focus towards higher grades. In addition, these schools need to have basic infrastructure facilities that enable fewer dropouts. For instance, roughly 63% of government schools in rural India

68 PwC Average years of schooling

The issue Desired outcome Average years in school: 7 Average years in school: 10 Increasing drop-out rates at higher levels Improving access to education with of education affecting employability. higher enrollment coupled with better quality of education. 2014 2034 % 32% 78% 25

100% 68% 100% 100% 45% Vocational

30% Higher education

In school 22% Dropped out

Primary Secondary Tertiary Primary Secondary Tertiary Levels K-5 Levels 6-12 Higher education

Achieving outcome by traditional means New additions New student admissions required over 20 years

Primary 6 Primary and secondary schools

Use of brick and mortar schools to Secondary 76 meet Winning Leap targets traditional schools Higher 21 500,000 education required across different levels Higher education of education required. (In millions of students)

Taking the Winning Leap Use of technology enabled solutions and adoption of the ‘PPP model school’ format could help save US$165 billion in investments in education infrastructure.

Fast track expansion of Formal education institutions Virtual schools traditional brick and mortar schools Access to quality education at reduced infrastructure costs

Higher education Increase focus on PPP model school format $ Government as an enabler For Profit model in formal education Massive Open Online Courses (MOOC) Bringing parity in quality of education.

The bottom line (over 20 years) Winning Leap 12% Projected Without Winning Leap With Winning Leap Winning Leap savings contribution: 8% investment: Fierce catch up 80% US$ 500 bn 335 bn 165 bn Significant leap Leapfrog Future of India 69 Financial service

Adoption of branchless bank- transformation for both urban and The scale and know-how needed ing channels and partnerships rural India would require an invest- to implement Winning Leap solu- with players in sectors other than ment outlay of around US$ 40bn tions for each of the 10 vectors will financial services could help by 2034 through traditional means. require Indian companies to radi- banks reduce their infrastructure The traditional approach to growth cally rethink how they do business. investments by 30% to achieve in the banking industry—building the Winning leap target. While ever more brick-and-mortar bank creation of a bank account is typi- branches—will however always be cally the first stage in the adoption a profitable proposition, especially of financial services, the ability of in rural markets. Many accounts customers to carry out transactions opened in rural parts, at present, remains the most critical aspect in remain comparably inactive and their evolution. This would entail hence operationally inefficient enabling greater access by addi- and less profitable for the banks. tion of physical infrastructure of Branchless banking solutions could bank branches and ATMs across the therefore be a smarter choice for country and significant expansion enabling scale. To deploy such in the scale of emerging branchless solutions, banks must forge cross- channels such as mobile and sector partnerships with established internet banking. players, shift from traditional to emerging low-cost solutions such Overall, the traditional branch as solar ATMs, and ride the mobil- heavy approach to financial inclu- ity wave to maximise their reach to sion would require an addition of customers. As a result, India could almost 400,000 bank branches hit the target of 90% of citizens and 175,000 ATMs by 2034, to a having access to banking services network of only 100,000 branches (and actively using those services) and 115, 000 ATMs existing by 2034 through much lower at present. Such a significant investments of US$ 28 bn.

70 PwC Domestic capital for growth

The issue Desired outcome Two-thirds of India’s adult population does not rely on formal institutions Reaching our goal by improving access to for its financial services. capital and driving consumption through digital modes. 2014 2034 Urban adult Rural adult Total India adult population: 175 million population: 110 million population

Total India 67% Urban adult % Rural adult 90 35% Need to expand access to million 20% 650 adults to reach national ambition

Total India Achieving outcome by traditional means The volume of banks increase from 100,000 in 2014 to 500,000 in 2034. Shift in branch/ ATM per million translates to 4X new branch Branch heavy approach to provide universal access addition and 1.5X new ATM additions Urban Rural (where X is existing infrastructure)

Branch density ATM density Branch density ATM density Branch density ATMs density

(per million 496 501 499 population) 395 395

248 278 69 194 21 126 141 2014 2034 2014 2034 2014 2034 2014 2034 2014 2034 2014 2034 400,000 new bank 175,000 new branches required ATMs required

Taking the Winning Leap Total India Adoption of innovative branchless banking channel options and forging partnership Shift in branch/ATM per million with non-banking players could help save 30% of infrastructure investment translates to 2X new branch addition A shift towards branchless banking solutions and 3X new ATM additions (where X is existing infrastructure). Urban Rural

Branch density ATM density Branch density ATM density Branch density ATMs density (per million 479 population) 418 395 422 371 297 248 210 69 21 126 141 2014 2034 2014 2034 2014 2034 2014 2034 2014 2034 2014 2034 200,000 new bank 330,000 new branches required ATMs required

Enable scale by Solar ATMs Mobile and forging partnerships to lower capital online banking with established costs, lesser energy to provide branch non-banking players consumption, lower banking functionalities maintenance costs on mobiles/desktops suited to rural needs

The bottom line (over 20 years) Winning Leap % Projected Without Winning Leap With Winning Leap Winning Leap savings contribution: 20 investment: 20% 60% Fierce catch up US$ 40 bn 27 bn 13 bn Significant leap Leapfrog Future of India 71 Chapter 3 Role of the private sector Building capabilities

7272 PwC PwC May we be blessed with the wealth of maximum tackled similar challenges offer clues about the aggregate capabili- capabilities. ties that will be required. The Rig Veda Winning Leap solutions require considerable technology and innovation expertise, management capability, and execution know- Defining sectoral challenges and entrepreneurs—will play a key how. They also call for familiarity vector targets, as well as potential role in making the Winning Leap. with global quality and service solutions for meeting them, is Within each sector, specific standards and the ability to forge crucial. But the real question is: capabilities need to be fortified. partnerships with companies in who can execute these solutions— Indeed, the experiences of some other sectors and noncorporate and how? The private sector—in companies in India and elsewhere entities such as academic institutes particular, industry leaders and around the world that have and social enterprises.

The Future of India 73 This is the right time to talk about a Winning Leap. I am sure we will pull ourselves out of the 5% growth and get to 7-8%.

KV Kamath ICICI Bank

Our research suggests that Winning involves adopting new or different sector of the Indian economy will Leap solutions from the private approaches or technologies, which need to execute solutions drawn sector fall within three broad cat- may have been developed elsewhere from all three categories. With egories. (See Figure 3.1.) The first but would also work in India. The the right mix in place, India could category, Fierce Catch-Up, entails third category, Leapfrog, represents achieve 9-10% annual economic following traditional approaches a radically different approach— growth over the next 20 years, or technologies to surmount a paradigm shift—that entails expanding its economy fivefold, challenges, but at an accelerated applying a new and potentially from U$2tr today to nearly pace. The second, Significant Leap, disruptive business model. Each US$10tr in 2034.1

Figure 3.1: Three categories of change

1 Fierce catch-up 2 Significant leap 3 Leapfrog

Using traditional approaches Adopting new or different Skip a generation or create or technologies— approaches and technologies an entirely new method to surmount challenges— that may have been of business model at an accelerated pace developed elsewhere but or technology that would also work in India

Example: Improve the Example: Shifting from Example: Moving from efficiency of energy coal-based power central to distributed power distribution. generation to nuclear or generation solar energy

74 PwC Figure 3.2: How new approaches could contribute to India’s economy

Leapfrog

40% Significant leap New solutions $10.4 tr* GDP

Fierce catch-up

60% Unblocking and executing existing methods

$1.9tr* GDP

2014 2034 Source: PwC analysis

The $10 trillion leap A range of stakeholders—including None of this can become reality According to our analysis, new government and entrepreneurial unless all businesses—corporations solutions (both Significant Leap and companies—would need to help and start-ups alike—focus on Leapfrog approaches) will account develop (and in some cases, developing new capabilities. Those for 30-40% of the Indian economy deliver) new solutions. But only that develop the right capabilities by 2034. (See Figure 3.2.) All three the private sector is in a position to for addressing solutions across the solutions combined would cost lead the shifts necessary to make ten vectors will become India’s less to deliver than the traditional these leaps a reality. Innovation is leaders of tomorrow. approach being followed today; critical to unleashing Winning Leap thus, they won’t require as much approaches. New and growing investment. For this reason, they ventures will naturally play a key represent the Winning Leap: not role in fostering innovation and only will they help India’s economy job creation. But the entire private to grow, they promise to do so sector must participate in enabling in a speedy and environmentally innovation as well as in developing sustainable way. fast, cost-effective solutions to spur the Winning Leap.

Future of India 75 Figure 3.3: Five key themes for the private sector to win in the Winning Leap economy

y, and sustainability tegrit focus y, in bilit nta ou cc A Integrity DNA Sustainability 1 from top and diversity led

Board and top

management E m alignment p 5 o w e r Purposeful e d brand a n d

in t Value growth f o e r s mind-set m - Customer d e n d i experience

c m focus u n s

o t i o t Innovation, m a Unlocking v research, e o r n and design n corporate i Shift in quality

n and service

a capabilities

h t Private sector key

w Unlocking o

r vested themes to shape and

structures

execute new methods

for the US$10 Trillion GDP leap 2

Unconventional

channels

Tri-entity F

partnerships x

Asset light e

models n

International d

know-how t e

Technology i

t r

a enabling

p p

e d

New human r n a

t a

e capital skills

c m

u o

d o

3 s e

r t

o N

76 PwC loyalty and iconic status. Indian Consumers today are at the heart of businesses. companies that want to participate successfully in the Winning Leap Companies need to develop the ability to be customer must also think differently about friendly, and they need to see the world from their brands. Indeed, the aggregate point of view. manufacturing sector will have to conceive of brand more broadly if Ramakrishnan Mukundan it is to achieve the “Value-added Tata Chemicals manufacturing” vector target of a 25% plus share of GDP.

India’s Hero MotoCorp (originally Hero Honda) is a notable example of a purposeful brand. Established in 1984 as a joint venture of Hero Cycles (India) and Honda, the New Delhi-based company has long positioned its motorcycles and scooters as personal transpor- To satisfy such consumers’ needs Five key themes tation for middle- class Indians and demands, businesses must To play a leading role in this frustrated by inadequate public cultivate capabilities in three critical national transformation, Indian transportation. The fundamental areas: creating a purposeful brand, businesses over the next 20 years brand connection, however, was focusing on the customer experi- must embrace fundamental shifts always more ambitious: fulfilling ence, and raising quality and already under way in the global the company’s vision of “a mobile service standards. economy. Our research, which and an empowered India.” From its included dozens of interviews with initial equity investment of INR 0.16 Create a purposeful brand India’s top corporate and govern- billion, Hero MotoCorp, now inde- Brand purpose goes beyond selling ment leaders, revealed five key pendently owned, is the largest a product or service or winning the themes that the private sector manufacturer of two-wheelers in customer’s wallet. It refers to the must focus on. (See Figure 3.3.) the world,2 boasting revenues of connection that a brand establishes INR 257 billion. Throughout its with the consumer’s deepest aspira- Empowered and growth journey, Hero MotoCorp has tions. A purposeful brand does more informed customers associated its brand with the rising than promise quality and reliability. As information grows (in both aspirations of young Indians. access and volume) and Indian In effect, it becomes both a supporting partner in, and a symbol of, the consumers are more able to apply Focus on the customer experience consumer’s path to prosperity. this information in their decision Our research clearly reveals that making, they become more the desire for a distinctive customer Brand importance is easy to grasp empowered. This empowerment experience. What do we mean by in a retail context. But what does is a fundamental attribute of the “distinctive customer experience”? it mean for, say, our “Value-added emerging middle class and the Everything from providing greater manufacturing” vector? Many middle class in India—which convenience or language accessibil- manufacturers throughout the together have rising aspirations. ity to offering customised solutions. world are a source of national pride: As per capita income grows and liv- consider the chaebols of South Korea Companies throughout different ing standards improve, that desire (Hyundai and Samsung), Japan’s industries will need to respond to will only increase. India’s companies conglomerates (Mitsubishi) and these customers’ changing habits. will need to bolster their empha- automakers (Toyota and Honda), They’ll have to offer incentives for sis on the customer experience to and US automakers (GM and Ford). customers to switch to a new set of meet the needs of a well-informed, All have earned deep customer offerings, and they must provide quality-conscious consumer. alternative solutions that maintain the convenience of existing products and services.

Future of India 77 The focus on customer experience The causes of poor schooling Raise quality and service standards applies far beyond the sectors we outcomes in India are well docu- Information penetration has raised commonly think of in this mented. Creating solutions that people’s awareness of quality. In context, such as consumer goods mitigate these causes—solutions response, companies need to move and retail services. It also encom- that could help India reach a target away from their current notions passes areas such as healthcare of ten years for the vector “Average of quality and service and strive to and education. years of schooling”—means that meet global standards. They have to educational institutions and com- create new, high-quality solutions Take the case of Coursera, a for- panies in the education business that will generate enduring value profit educational technology must focus on customer experience. for customers. Moreover, the focus company. Coursera partners with This means treating convenience, on quality and service applies not renowned universities worldwide accessibility, and customisation as only to urban and affluent consum- to create content and offer massive priorities. These three elements ers but also to India’s emerging open online courses (MOOCs) in a might well have different meanings middle class—the consumer broad range of disciplines to give in different contexts. For example, segment representing the biggest more people access to world-class convenience in urban India might private sector buyer, by volume, education. More than 2m students mean making course material of daily services. from throughout the world are cur- available online. In rural India, rently enrolled in more than 200 convenience might apply not to the Companies cannot rely on just courses.3 Coursera’s revenues come student, but to his or her parents, attracting customers. The experi- from university-branded completion in the form of flexible hours or free ence of financial services businesses certificates and revenue-sharing transportation to and from school. targeting unbanked customers, such arrangements with universities and Because of the intensive need for as the Mzansi initiative in South other partners, such as Amazon. In consumer research, the corporate AfricaI and mobile money service India, MOOC platforms, especially sector is best positioned to lead the I The initiative refers to no-frill bank accounts launched if made available in multiple Indian effort in developing the kinds of jointly by four large private banks and the state-owned languages, could address some solutions that are so essential, Postbank in South America. More than 6m accounts were opened during the 2004-2008 period, improving of the challenges related to access and so difficult to accomplish, penetration from 46% to 63%. However, 30% of accounts remained inactive, with 55% lower to quality education. in a country as diverse as India. transactions, resulting in a 70% lower fee income for banks than commercial accounts.

78 PwC providers, shows why. Inactive Flexible and adaptive will be particularly relevant in fuel- accounts have become a major operating models ing the kind of growth we envision cost issue for banks because they Tomorrow’s economy in India will in the Indian economy over the next yield low revenues. These compa- be radically different from today’s. decade. nies must develop more-targeted Significant Leap and Leapfrog solu- products and provide ongoing sales tions will be invented and adopted. For instance, technology-enabled support to convert account owner- New technologies will supplant car-rental services and car-sharing ship numbers into a greater number current ones. New regulations and companies are challenging private- of account transactions and higher market trends will fuel changes in vehicle ownership in developed account balances.4 This lesson market sizes, consumer tastes, and markets including Switzerland, applies to all companies. By embed- customer preferences. Rising con- Germany, Netherlands, Austria, and ding greater quality and service sumer aspirations, driven by greater the US. In fact, leading automotive into their products, companies will awareness of how much better players, such as Daimler and BMW, be able to retain, and not merely people’s lives could be, will present are entering the business. Studies attract, customers—including new challenges for companies. show that by reducing car owner- members of the growing (and ship, car rentals and car-sharing evolving) middle class. In such a dynamic economy, operat- services reduce the incentive to ing models will need to be more drive and encourage people to Our discussions with corporate flexible and adaptive than they are rely more on alternatives such as leaders in India suggest that while now. To modify their operating public transportation. Moreover, Indian consumers expect value for models in these ways, India’s com- these businesses significantly money, they are also aware of global panies will have to adopt asset-light reduce traffic congestion as well as standards of quality and service. business models that minimise risk; parking-space requirements. One- For example, consider the rapid establish unconventional partner- way car-sharing plans have become rise of the relatively unregulated ships, including with potential especially popular in Germany: informal education sector in India. competitors; and build capabilities more than 50% of the 8.5m one- Private tutoring, vocational classes, that focus on technology. way car-share trips booked in preschool facilities, and training 2013 were in Germany.5 centres for competitive examina- Create asset-light business models tions—all of these have attracted In markets throughout the world, Whether such models can suc- large investments from private companies traditionally dependent ceed in India is hard to predict. equity and other investors that per- on hard assets are shifting toward However, given India’s projected ceive consumer demand for asset-light business models. Such urban population of 600m by 2034, a level of quality and service in models emphasise asset ownership such asset-light models are clearly education that’s unavailable in and instead employ a pay-as-you- necessary to excel on the “Manage India’s formal education sector. use approach. Asset-light models growth in urbanisation” vector.

Partner through unconventional channels To make their operating models more flexible and adaptive, companies need to build capabilities that The private sector, in India, is so far built upon the enable them to target unconventional channels. And to extend their fundamental business premise of the need for scale. reach and increase efficiency, they But with the introduction of newer technologies, even must also establish new partner- micro transactions begin to make economic sense, ships, including some with potential competitors or with players in other most importantly due to the insights that one gains sectors along the value chain. into the market. Take the case of Aasaan Stores, a Sanjay Purohit retail initiative of Mumbai-based Infosys Trans Retail Ventures. Aasaan partners with kirana, neighbourhood grocery stores, to train them in

Future of India 79 technology, processes, and cus- might take a different tack entirely farming can improve the quality and tomer service. In doing so, Aasaan in India. Logistics costs and supply- quantity of crop yields, and reduce empowers kirana stores to make chain complexity represent major production costs. It also helps on-the-spot business decisions. hurdles for Indian retailers, both reduce the use of fertiliser and pes- Moreover, as part of its franchise big and small. Large retail corpora- ticides, prevents soil degradation, arrangement, Aasaan handles store tions might lend their capabilities as and optimises water use. Around ambience, IT systems, the common aggregators of back-end infrastruc- the world, precision farming is supply chain, and branding and ture to smaller retailers. These carried out in tandem with modern marketing. Aasaan converts the are some of the nonlinear farming practices and technologies, traditional counter-based stores into approaches that we’re referring including satellite imagery and self-service mini-supermarkets. It to when we speak of increasing IT-enabled solutions. also equips the stores with point- “Share of organised retail” to 50% of-sale terminals and inventory by 2034 and “Improving physical The interconnectedness of our management systems and sets up connectivity” (logistics costs) to vectors of success is crucial to a warehouse to provide a single 8% of GDP by 2034. the Winning Leap. For example, supply point for groceries as well while improving digital connectiv- as packaged goods. Aasaan thus Use technology-enabled products ity for 80% of the population is an combines its prowess in organised and services enabler, the real success comes retailing with the proficiency of a Technology—in particular, digital if connectivity can directly boost neighbourhood store to create a solutions—will play an even greater another vector target—doubling winning proposition for customers role in the years to come in enabling agricultural yield from its present and greater business opportunities and improving access to products levels. In this sense, companies for its retailer partners. and services throughout India. must also think about establishing This is especially true for remote nontraditional partnerships. This example illustrates the kind of markets, where the high cost of creative solutions suitable for the delivering services physically has Nontraditional resources vector “Share of organised retail.” traditionally made business models and partnerships India might even leapfrog the big- nonviable for private enterprise. Addressing new and dynamic box retail approach dominant in markets can be a cost-intensive developed markets. However, the Take agriculture, the use of big proposition. Many companies lack organisation of large-scale retail data and analytics in precision the resources and capabilities to sector, and government as they join Every company has to develop the skills it requires forces to solve the tough challenge within the company itself. No educational institution of financial inclusion. can provide you with employees who are ready to Leverage international know-how work at the factory/company when they join. The Historically, Indian companies have not invested as much in R&D as training has to be inside the company. companies in other countries, such Vivek Chaand Sehgal as the US, South Korea, and China. Motherson Sumi Systems Limited Although Indian companies increasingly recognise the importance of R&D, the case for collaborating with foreign companies to access international know-how is strong. Among its benefits: boosting speed to market, developing new solutions, and accessing proven technologies. Foreign players, in return, can gain access to India’s large domestic market, along with local knowledge of commercialisation and marketing innovations. expand into new regions or market Build tri-entity partnerships segments on their own. Moreover, To facilitate India’s growth journey, Many foreign companies choose the high cost of building infrastruc- companies need to build tri-entity to enter the Indian market by ture—especially given India’s size partnerships by combining their themselves. But they face a daunt- and widely dispersed consumers— insights and capabilities with those ing array of challenges. Consider creates a disincentive for private of government and the social sector. a foreign company that wants to players to target new markets. So The Pantawid Pamilyang Pilipino participate in improving perfor- does the low-spend potential of cus- Program (4P) cash transfer model mance on India’s “Agricultural tomers in some untapped segments in the Philippines is one example yield” vector. It would be forced to (such as in rural areas). In fact, of such a partnership. The pro- deal with multiple layers of stake- customer-acquisition costs in these gram created a hybrid model for holders, regulators, and members of segments are prohibitive. For these extending welfare payments to poor civil society, which would introduce reasons, it’s vital that companies get households that entailed establish- delays, unforeseen costs, and other access to nontraditional resources ing a network of different payment obstacles. A technology provider (such as advanced production channels managed by a state-owned that wanted to contribute to better technologies or new distribution bank. It provided multiple access performance on “Improving digital systems), and they can do this by points through such channels as connectivity” in India by install- forging new kinds of partnerships. cash cards, partner ATMs, post ing its new last-mile connectivity With such strategies, they can share offices, and pawnshops—a strategy technology would find it almost market- and infrastructure-devel- that would help customers access impossible to go it alone. In both opment costs, create new delivery services more easily while minimis- cases, local collaboration is a must. channels, and reduce the risks asso- ing their transportation costs.6 The fundamental shifts required for ciated with entering new markets. Winning Leap solutions are so enor- To improve performance on “Access mous that collaboration, alliances, Through new partnerships, Indian to banking services” (another key joint ventures, and acquisitions companies can adopt alternative vector) to 90%, a rate at which are virtually essential. approaches to growth and consumers would be using banks expansion as economic growth daily to make transactions, tri-entity Motherson Sumi Systems considers accelerates, with each partner partnerships will be crucial. Not acquisitions an important engine contributing its particular resources only do they foster a sense of trust for growth. Itself a joint venture and capabilities required to reach and custodianship among consum- (between India’s Samvardhana these consumers. ers, but they also bring out the Motherson Group and Sumitomo best in the private sector, the social Wiring Systems of Japan), it has

Future of India 81 acquired 11 companies over the a powerful example of the impor- the business-correspondent model past 12 years in countries includ- tance of acquiring international in Brazil and the PPP model in ing Japan, Germany, Ireland, the know-how, at both the industry and the Philippines. However, each of Czech Republic, and Australia to national levels, in gaining signifi- these models requires the core- gain access to new technologies and cant headway in the “Value-added sector companies to develop new international expertise as well as manufacturing” vector. capabilities, such as the ability to to adopt new processes and manu- identify suitable partners, create facturing capabilities. The strategy Build new human-capital skills and manage new processes (such as helped the company enter new Companies need to develop new incentivising and monitoring agent geographies and product lines and, human-capital skills, at both the networks or organising financial lit- as a result, establish itself as India’s leadership and employee levels, to eracy campaigns), and craft sound largest auto-component manufac- weather the changes brought about contracts for successful implemen- turer: from 2008-2009 by Winning Leap solutions. Among tation. Risk sharing among partners to 2012-2013, the company grew the new skills needed: managing will also be important, especially for tenfold, from INR 2,595 crore to partnership-intensive business models involving both public and INR 25,225 crore.7 models, leading new innovation private sector players.10 processes, developing new risk man- The case for international col- agement models, and working with A growth and innovation laboration as a means of acquiring companies in different industries. mind-set international know-how is equally Innovation has been the back- strong at the national level. For example, enabling financial bone supporting change around South Korea is a prime example. access for the unbanked is an under- the world—providing accessible, Throughout the 1970s and 1980s, developed market in India. But affordable solutions that meet the country focused on acquiring it’s an expensive proposition, ever-shifting consumer needs. technology and new skills through given that financial-services Therefore, developing a growth and technology transfers, foreign companies lack the resources and innovation mind-set is essential for licences, and reverse engineering. capabilities to expand into these overcoming India’s challenges. The In this way, it advanced from a low- regions by themselves. Partnerships private sector needs to take the lead technology to a high-technology with entities outside the industry in fostering an innovation culture economy. Today, South Korea could provide a vital alternative in India. Companies can do so by counts among the world’s most approach for expanding market adopting a value-growth mind- developed nations, with a per capita reach. Worldwide, the financial set, investing in innovation and income of US$33,440 in 20138 services sector has relied on differ- R&D, and unlocking vested inter- and a Human Development Index ent partnership models to reach ests—embodied in the antiquated (HDI) ranking of 15, the highest in the unbanked, including the use of infrastructure that continues to East Asia9. The country provides cross-sector partnerships. Witness hamper India’s growth.

Adopt a value-growth mind-set To achieve the Winning Leap, companies must develop a mind-set of value growth—one that’s singularly committed to multiplying value in There is no one company that can do everything. every way possible. Such a mind-set The ability to partner, whether it is with industry will need to promote experimental thinking, focus on India’s domestic associations or through a coalition of different market to lead national progress, partners and companies, is going to become and challenge the status quo.

very important. A value-growth mind-set is also Bhaskar Pramanik oriented toward building capa- Microsoft bilities and solving customers’ problems in new ways. It seeks growth that is sustainable, for the industry as well as the community at large.

Flipkart, along with several other

82 PwC The Winning Leap and Indian culture

Successful transformations are usually built with the benefit of strong values and cultural change.

As the Global Leader of PwC’s Health practice, I’ve been fortunate enough to make several visits to India. On each occasion I’ve been struck by the values and culture I have witnessed and the entrepreneurship and warmth of the people I’ve met. I’ve also sensed a strong sense of purpose emanating from business leaders, who display a deep sense of social and environmental responsibility which goes way beyond the profit motive.

India’s vast historical and linguistic heritage, with a strong tradition of respecting diversity, offers the country an extraordinary source of innovation and is a remarkable asset. As a vibrant country seeking new solutions to the increasingly complex and connected challenges, these assets will need to be an integral part of helping shape the Winning Leap solutions and will strongly influence India’s ability to effect change.

Technology is bound to play a central role in any transformation. It is likely; too, that technology will help shape the culture of a new India, especially true in a country where almost 750 million citizens are under 30 and where technology forms an increasing part of day to day life. New cultural norms are likely to emerge—at once respectful and questioning, traditional and digital.

Culture and values will help determine India’s success over the next decade and beyond. A culture that values its heritage, but also refreshes and renews, should be at the heart of Winning Leap solutions.

Patrick Figgis Senior Partner, Global Leader Health PwC

Future of India 83 rapidly growing online retailers undertaking integral to its pursuit invest in indigenous R&D as well. that are driving India’s e-commerce of growth that creates value By doing so, they can adapt global market, represents a good example for stakeholders.13 innovations to create local of a company challenging the con- affordable solutions. vention in its home market. Instead Excel at innovation and R&D of relying on the nation’s existing The pace of innovation-led Mahindra & Mahindra’s foray into logistics infrastructure, Flipkart disruption is increasing. Whether the nascent electric vehicle (EV) has built its own logistics system to it evolves from global best practices market in India provides an example improve its reach and profitability. or is developed within India, of how companies can identify and As a result, the company has grown innovation will create the possi- scale up innovative solutions with exponentially in the past few years bilities that enable Winning Leaps. a partner. The company acquired and is already developing capa- Excelling at innovation and R&D Reva, a start-up, not only to build its bilities to drive future growth. For is therefore essential to achieve own EV capability but also to scale example, it is adopting technology the growth and new solutions up and commercialise Reva’s EV to manage tenfold growth in web envisaged in each of our vectors. technology. Access to Reva’s tech- traffic,11 expanding warehouses, nology strengthened Mahindra’s partnering with more than 10,000 The private sector must take the EV capabilities, and Reva could sellers, fortifying its supply-chain lead in creating the requisite R&D leverage Mahindra’s vehicle- capabilities, and investing in a capabilities and sharpening the development technology, global payment gateway. In addition, focus on quality growth. To do so, distribution network, sourcing Flipkart has partnered with smaller companies will need to step up clout, and financing support online retailers, letting them use investment in R&D in the coming to launch a state-of-the-art EV the Flipkart platform and logistics years. They will also need to con- for global markets. infrastructure.12 To help small- and tinue offering affordable solutions medium-size enterprises (SMEs) but not compromise on quality and Google followed a similar strategy and traditional artisans get online, design. We have already outlined to popularise mobile solutions that Flipkart is also working with the the role of international partner- provide real-time traffic information Indian government to train and pos- ships in acquiring technologies when the Internet giant acquired sibly employ or partner with people and process expertise in the Indian Waze and integrated its solution in rural and semi-urban areas. The market. Partnerships will also be into Google Maps. Waze, an Israel- company views this initiative not as an important means for absorbing based start-up, is a mobile app an act of corporate social responsi- foreign R&D capability. But Indian that uses real-time GPS data from bility but also as an companies must also continue to nearly 50m users to deliver accurate traffic information and help relieve challenge private vehicle use and accountability. Leaders also estab- urban congestion. The integration popularise public transportation. As lish trust within an organisation by of Google Maps and Waze enhanced part of the alliance, different service demonstrating integrity—embody- the functionality of the application providers joined hands and created ing it through their behaviour and and expanded its reach to many a coordinated timetable and a com- upholding it as a company value. countries throughout South mon fare and ticketing system to Indeed, customers and other stake- America, North America, allow better interoperability of their holders are increasingly demanding and Europe.14 services. Governed by detailed con- accountability and integrity, as well tractual agreements, the alliances as sustainability, from the compa- Unlock vested structures also created an independent legal nies they deal with. As the private sector takes the lead entity to manage operations. These in providing services once delivered kinds of moves—competitors leav- Delivering Winning Leap solutions by the public sector, it must also ing aside their vested interests to requires a new framework for gov- overcome entrenched infrastructure unite for a common goal, or disrupt- erning the company, one that takes that is generally inhospitable to new ing other entrenched interests—will into account a company’s impact on solutions, new business models, and be necessary for India to achieve the society as a whole. This framework new approaches. India’s power utili- “Manage growth in urbanisation” comprises three key elements: rein- ties are a good example. They were goal of effectively serving 650m forcing the alignment between top historically government-owned city dwellers in 2034.15 management and the board, embed- monopolies. Recently, private ding integrity in the corporate DNA, companies entered the market, A focus on accountability, and upholding sustainability and its increasing efficiencies and provid- integrity, and sustainability social impact as core values of the ing customers with choices. Such Managing the challenges of India’s organisation. bold moves are required if perfor- marketplace of the future will mance on the “Access to power” require greater transparency and Align top management and board vector is to reach 100% penetration accountability throughout the Today’s companies need boards by 2034. enterprise, from the top echelons with diverse memberships that are through the managerial ranks and capable of challenging manage- Transportation alliances in even to boards. The partnerships ment as well as collaborating with Germany illustrate how different and coalitions we envision, whether management to balance strategic service providers can join forces and private-private or public-private, growth and risks. This is especially move beyond their individual inter- are based on trust. And trust cannot important for meeting the chal- ests—in this case, to collectively be built without transparency and lenges posed by the Winning Leap vectors, because the risks involved in developing Leapfrog solutions in particular are considerable. Management and boards will need a different approach, not only to mitigate risks but also to have the courage and consensus to view Leapfrog investments through a long-term lens.

Several companies in India have created boards with this kind of aligned leadership. The Tata Group is one such example. Tata has repeatedly made significant contrarian bets (in such sectors as automotive and urban housing) that go against the conventional models of risk taking. These investments have run the gamut, from acquisitions and greenfield expansions to

Future of India 85 R&D and execution capabilities. Consider Aravind Eye Care System, The need for “good” growth— Such investments could not have an ophthalmological hospital. growth that is responsible, happened without a tightly aligned Aravind is widely regarded as an inclusive, and lasting—will only management and board. Today, the exemplar of an organisation that intensify as India’s population Tata Group includes 32 publicly has achieved business success continues to expand. But any listed companies with a combined through its strong value system, growth, let alone “good” growth, market capitalisation of about often linking customer service to can be elusive, especially when US$139bn and a shareholder base spirituality. From the time that resources are so constrained. New of 3.9m.16 Tata has also established employees are recruited, the ideas for sustainability could have itself as a global powerhouse; company promotes integrity as a far-reaching benefits for Indian it is the only Indian player to core value. Both management and businesses and citizens alike. rank among the top 50 brands employees have a clear sense of worldwide.II,17 purpose. Through its deeply embed- ITC is a case in point. The Indian ded values, Aravind has created an conglomerate has made a systematic Weave integrity into the corporate environment of success, for patients and concerted effort toward sustain- DNA from the top as much as for the company: it ability across its business portfolio. Senior leadership teams need to provides the greatest number of The company views sustainability as promote integrity at all levels of eye-care interventions globally. more than corporate social respon- their companies. Integrity is mani- sibility; it is value adding. ITC is fested in behaviours such as dealing Foster sustainability and diversity carbon-positive, water-positive, and honestly and fairly with leaders, India’s population is rich in diver- solid-waste-recycling positive, all co-workers, and customers, sup- sity. To better serve these diverse while supporting some 6m liveli- pliers, and other stakeholders. The consumers, companies will need hoods across India. The company’s integrity of leaders and employees to link their sustainability and well-known e-Chaupal initiative will be critical for developing and diversity agendas to their customer provides digital infrastructure to delivering Winning Leap solutions. and stakeholder agendas. Winning 4m rural farmers. Its Women’s When regulatory bodies know Leap solutions outlined in Chapter Empowerment initiative provides that companies are operating with 2 demonstrate that the sustainable livelihoods to more than 40,000 integrity, they may be more likely growth of the Indian economy, rural women. These achievements, to remove barriers to doing busi- given the nation’s resource con- along with 26% annual growth ness or provide incentives for new straints, will be impossible without in shareholder returns for several solutions to be adopted. Customers efficiencies and a sharper focus on years, demonstrate that a sustain- also develop a stronger bond of diversity and empowerment. ability and diversity agenda need trust with companies that they see not sacrifice a company’s as having integrity, and trust is a economic benefit.18 key requirement for the adoption of nontraditional solutions. More holistic measurement systems are needed—systems that account for global megatrends and that let management make decisions based on criteria beyond the traditional metrics. PwC’s total impact It really is about doing small projects but doing them measurement (TIM) framework measures business success beyond right. It is about empowering local governments and financial results; a value (and a the local leadership. You need to provide them with cost) is calculated for a company’s an agenda, hand over responsibility and make them social, environmental, and financial activities. A business can thus see at accountable. a glance the impact it’s having and the trade-offs between strategies. Vikrampati Singhania J. K. Fenner (India) Limited With the TIM framework, a business can identify the decision that’s optimal for all its stakeholders.19

II The Tata Group was ranked 34th worldwide in the Global 500 2014 ranking by Brand Finance. Other Indian companies in the list include SBI (rank: 347), Airtel (381), Reliance Industries (413), and Indian Oil (474).

86 PwC Role of women in the Winning Leap

India has seen a silent revolution in women’s empowerment in the past few years. Recent data shows that for the first time in India’s history, the number of women enrolled in educational institutions has climbed steadily and is now higher than the number of men. This trend suggests that Indian women are par- ticipating more in the economy and in society than they did in the past.

We maintain that women will play a critical role in India’s Winning Leap. Here’s why: Research by John Gerzema and Michael D’ Antonio on masculine and feminine traits* (informed by polling of more than 32,000 people from 13 countries) suggests that women are redefining what it means to “win”. This research suggests that the definition of “winning” is shifting from a zero-sum game to an inclusive experience. In a highly interconnected and interdependent world, traits such as aggression and control (which many of the research participants associated with men) are considered less effective than the ability to collaborate and share credit (which many of the research participants associated with women).

The coming era of change and new solutions requires a renewed role for women. Indian women today may have less political or economic power than men, but they are also less associated with vested structures and old ideas and methods. Thus, as India seeks to implement new solutions in its ambition to become a US$10tr economy, we believe that women will emerge as champions of change and new thinking, thanks to their increased participation in India’s economy and society.

The Winning Leap needs the active participation of women citizens, entrepreneurs, investors, and corporate and government leaders. Not only will such participation unleash the talent of 50% of India’s population, even more important, it will use their collaborative and change-oriented mind-set to make the Winning Leap possible.

Naina Lal Kidwai Chairman , India Director, HSBC Asia Pacific

Future of India 87 Chapter 4 Entrepreneurial sector

8888 PwC PwC You see things; and you say ‘Why?’ But I dream things also play a major role; it has the nimbleness in operations and the that never were; and I say ‘Why not? depth in ideas to create the radical George Bernard Shaw new solutions required for a vibrant future economy.

Entrepreneurs and the entrepreneurial sector as a whole also The task of fuelling the growth and sector lacks the capacity to gener- possess other qualities critical for innovations needed to power India’s ate the 12m jobs needed each year developing innovative solutions: the Winning Leap will fall naturally to to absorb the flood of job-market willingness to take risks, an aptitude the country’s corporate sector. But entrants unleashed by India’s for fast decision-making, and bold corporations alone cannot do the demographic dividend. The entre- leadership. Yet to achieve Winning job. At present, India’s corporate preneurial sector must therefore

The Future of India 89 Leap objectives, the entrepreneurial Entrepreneurial DNA India’s telecom sector has enjoyed a sector will also need to expand, in Much has been written about India’s similar growth trajectory, thanks to both size and impact. India must entrepreneurial DNA. Indeed, the entrepreneurialism. Within almost cultivate entrepreneurs on a scale Indian diaspora is considered one of 20 years (1995-2014), the sector 2 unprecedented in its business his- the most successful entrepreneurial racked up 910m mobile-phone sub- tory. Furthermore, the notion of communities throughout the world. scriptions—18 times the number of 3 entrepreneurialism should not be So why hasn’t a dynamic entrepre- landlines (50m) in place in 2006, limited to growth-oriented compa- neurial ecosystem taken root in India? the year when landline subscription nies rooted in India’s major urban reached its peak in India. centres. Entrepreneurialism must It’s not because India lacks entrepre- also percolate in smaller towns and neurialism. A case in point is India’s Entrepreneurial sector successes are districts throughout the country. information technology (IT) revolu- important for another reason: their As it does in other countries, the tion, whose exports over the past multiplier effect. The IT industry, entrepreneurial sector in India will two decades exploded from less than pioneered by companies such as also spawn tomorrow’s multimillion US$100m to US$86bn in 2013-20141 TCS, Infosys, and Wipro, fostered dollar companies. and generated business solutions an entrepreneurial mind-set that is for multinationals and other leading powering the latest boom in India’s companies worldwide. e-commerce sector. This effect can, of course, play out in any sector—and

Figure 4.1: The roles of government and the private sector in creating an entrepreneurial ecosystem

Role of government Role of the private sector

Favourable business environment Providing market • Improving the ease of doing business access • Provide tax incentives to entrepreneurs • Mentoring entrepreneurs • Simplifying regulations for • Incubating new ventures t entry and exit men • Building entrepreneurial on Ma • Media support in ir rk networks nv e highlighting entrepreneurs e t • Innovation focus s a s c • Tolerance towards failure e c • Providing access to end n e i s s s consumers u

I Enabling n Availability f r infrastructure a of resources s tr s • Build the required u ce • Provide access to capital infrastructure ct ur u so Venture-capital/Private equity  re e Physical – roads, rail etc R Angel investors  Digital – telecom, Debt funding broadband etc • Improving the quality of • Provide access to quality human resources utilities – water, electricity Educational institutions promoting entrepreneurship Providing relevant training

Source: PwC analysis

90 PwC in India, it will be essential. As the government takes steps to promote a culture of enterprise, India’s corporate sector has an important role to Innovation and play in promoting entrepreneurialism in India, as our research shows. Entrepreneurship— Building the entrepreneurial links with the ecosystem Corporate Sector Corporations must view entrepreneurs as their partners in creating At Marico, innovation has been at the heart of our business. Winning Leap solutions. The gov- Some years back we instituted an Innovation council to ernment must also recognise that formalise the fostering of innovation in the wider economy. the corporate and entrepreneur- This has resulted in us launching a magazine – Innowin, ial sectors need to collaborate to and organising a yearly award ceremony that celebrates develop the solutions to India’s innovation in all walks of life, both economic and social challenges. And the corporate sector and government can help unleash Over the past 3 years I have launched a social initiative Indian entrepreneurship. (See called ASCENT to provide an acceleration platform for Figure 4.1.) scaling-up enterprises. As part of this journey I have observed that more than access to resources like capital, Provide market access these young entrepreneurs are also looking for guidance and Entrepreneurs need access to inspiration from someone who has trodden a similar path. markets to launch and scale their This has resulted in a forum called “Huddle with Harsh”, businesses. The corporate sector wherein I engage with 15 entrepreneurs every month, in an can help small- and medium-size interactive format where they can bounce their ideas with enterprises (SMEs) by engaging me, and amongst themselves as well. Over the past many them as providers. By bringing Huddle sessions we have discussed topics like attracting and them into their supply chain, they retaining talent, building organisational culture, managing connect new ventures to markets. growth, balancing strategy & execution and various other Corporations have the institutional details. Not only am I able to guide them with specific points know-how to overcome the many in terms of scaling their business, fostering a growth mindset barriers to accessing markets across in their teams but often I am also able to connect them India’s states, such as cross-border with other entrepreneurs or markets that can benefit their taxes and different legal and regula- business. tory requirements. It is my firm belief that only widespread entrepreneur- Royal Enfield motorcycles is an ship can give purpose and employment to the millions of example of this approach. It has young Indians who are entering our workforce every year. repositioned itself as a branded and Corporate India can take part and benefit from a mentor- high-value product seen as an aspi- ing relationship as it provides companies an insight into rational bike. Thus, it has to focus on new ideas and fresh thinking. As Marico grows and builds the front end of its business: creating capabilities for its own Winning Leap, I believe our relation- new channels, strengthening the ship with smaller, entrepreneurial companies will be a key brand, and cementing relationships ingredient for growth and success. Finally on a personal basis with customers. To do so, it has I feel refreshed by the young energies of these entrepreneurs partnered with a number of SME on whose shoulders lies future growth and innovation of our suppliers that produce many of the economy. key components that Royal Enfield earlier manufactured in-house. This Harsh Mariwala back-end partnership enables Royal Chairman Enfield to focus on its business prior- Marico ity of quality-driven market growth as it benefits from the specialisation and mass-production skills of its suppliers. The corporate sector can

Future of India 91 Innovation in any economic system happens through a process of variation and selection. The process resembles that of evolution in nature. In an economic system, entrepreneurs typically provide the variation in ideas and solutions, while large firms help select and scale the right ventures to bring about wider change.

Jaideep Prabhu Author, Jugaad Innovation

also facilitate access to markets for to flourish. Debt markets and credit of engineering colleges in the entrepreneurs in other important assessment must also be available. state of Karnataka has provided a ways: by mentoring them, by provid- steady flow of skilled workers for ing incubators for promising new New ventures also need a supply IT companies in the state’s capital ideas, and by helping them build of talent, especially talent with (Bangalore). The city is also grow- entrepreneurial networks. Doing so entrepreneurial experience. In an ing as a hub for R&D, boasting a makes sense, for companies as well enabling environment for entre- number of institutes catering to as for experienced entrepreneurs. preneurialism, in which many new industry needs, such as the National Both benefit directly from these ventures coexist, talent is gener- Centre for Biological Sciences, collaborations, as Silicon Valley and ally more available owing to the the Jawaharlal Nehru Centre for other innovation hubs demonstrate network effect of talent creation. Advanced Scientific Research, and so vividly. For example, a disruptive It took just a handful of success- the Indian Institute of Science.4 product idea would likely need to be ful IT start-ups in the 1990s for developed without the restrictions it entire ecosystems of technology Providing entrepreneurship-specific would face in a large organisation— talent to develop in Hyderabad and training as a degree or vocational navigating the approval process, Bangalore, India’s Silicon Valley. In curricula can benefit a young work- getting funding and resources, and Chennai, the same story appears force, at both the leadership and so forth. Mentors, incubators, and to be unfolding in the automotive employee levels. Public and private entrepreneurial networks can play sector, begging the question: could educational institutions play a lead- a vital role for new entrepreneurs, Chennai be the next Detroit? ing role in supporting education and offering them needed skill sets and training, and the corporate sector guidance, as well as the ability to The Hyderabad and Bangalore could contribute content, curricu- accelerate decision making. examples also demonstrate that lum, and delivery mechanisms (such educational institutions provide as on-site learning). The need to Make resources available crucial support for the development recognise the crucial importance of As with most business leaders, the of this ecosystem. For example, entrepreneurship and its skill sets is two most important resources for the presence of a large number essential for this basic requirement. entrepreneurs are financial capital and human capital. New-venture founders cannot rely on traditional investors for funding; such investors are too averse to unquantifiable Large-scale manufacturing cannot provide the risks, even those on a small scale. scale of jobs that our country requires. We need to The investors that entrepreneurs can attract want consistent regula- make doing business easy in India and unleash the tion and the ability to move money entrepreneurship sector. in and out of the economy, this is especially true for foreign inves- Shikha Sharma Axis Bank tors. Moreover, such investors want a robust regulatory environment that ensures market protections and safeguards and thus allows venture capital and private equity

92 PwC Provide enabling to conduct business. This is a shape policy), enabling capital to infrastructure broader, systemic problem, one that flow smoothly, and reforming regu- India needs to develop physical and the government could play a bigger lations and procedures to facilitate digital infrastructure to foster the role in addressing. establishing new businesses. growth of entrepreneurial compa- (See Figure 4.2.) nies. For small manufacturers in Ensure a favourable business India, the cost of transportation environment Beyond the formal barriers, Indian (including its associated delays) A key role of government and culture hasn’t traditionally cel- accounts for a disproportionate policymakers is creating an envi- ebrated entrepreneurialism. This is amount of operating costs com- ronment conducive to business not just a failing of the private sec- pared with global standards. formation: making it easy to launch tor or the government. The media, and operate a business. Government schools and civil institutions, and High transaction costs remain a plays a role in three primary areas: even the family have a responsibil- major barrier to entry for many facilitating the ecosystem (for ity here. For instance, there needs cash-strapped entrepreneurs. It’s example, by funding innovation labs to be a greater tolerance for failure, expensive to start a business—and and working with stakeholders to to encourage the kind of risk-taking

Figure 4.2: How the government could establish a favourable business environment

Role of the government

Create access Enable Build an to capital entrepreneurs entrepreneurial ecosystem • Enabling venture-capital • Procedural and regulatory • Facilitate collaboration funds, angel investors, reform for all stages of with overall ecosystem and businesses to provide business • Funding innovation hubs equity to entrepreneurs Entry—single window • Enabling banks and clearance, information • Participation in dialogue financial investors availability, industrial with all stakeholders to ensure consultative to provide debt to clusters etc. policy formation entrepreneurs Operations —labour • Fiscal policy initiatives laws, intellectual • Facilitate effective property laws etc. provision of services • Regulatory reform by incubators affecting fund raising, Exit mechanisms and operations, and exit, modalities including • Creation of accreditation especially domestic paperwork and frameworks for certifying capital raising restrictions quality of startups • Regulatory reform for • Hard infrastructure promoting credit to development start-ups • Creation of innovative products for providing noncollateralised debt

Source: Planning Commission, Government of India

Future of India 93 Figure 4.3: SMEs in India and the lack of scale

Percentage indicates number of businesses in each category

94.9% Micro enterprises • Fewer than 10 employees • Investment in equipment does not exceed INR 10 lakh

4.9% Small enterprises • 10 to 100 employees

• Investment in equipment is more than INR 10 lakh but less than INR 2 crore

0.2% Medium enterprises • 100 to 1,000 employees Source: PwC analysis • Investment in equipment is more than INR 2 crore but less than INR 5 crore

Entrepreneurship initiatives in India are driven by primary motives of addressing gaps—and not for creating paradigm-shifting change.

Vineet Rai Intellecap

that’s central to entrepreneurship. Such an unfavourable regulatory by nurturing the entrepreneurial The media could help change atti- environment limits Indian SMEs’ ecosystem: specifically, by providing tudes, too, by bolstering coverage ability to grow. Of the total number access to markets, support systems, of innovation and innovators and of SMEs, only 0.2% are medium and funding. by highlighting entrepreneurial role size, employing between 100 and models. 1,000 people. And although SMEs Perhaps the most important way employ 40% of India’s overall work- that private-sector entities—estab- The potential of SMEs force, they contribute only 17% to lished companies and investors—can India has 48m SMEs, the second- the nation’s GDP. Lack of scale is a contribute is by identifying promis- highest number in the world after major issue, and the constraints that ing ventures and providing them China (with 50m). SMEs’ impact SMEs face in growing puts con- with the support they need to is not trivial, either: they contrib- siderable limits on India’s overall develop. Consider the following two ute 45% to India’s manufacturing economic growth. The presence of approaches. output, account for 40% of total many unregistered SMEs also con- exports, and play an important tributes to systemic inefficiencies Build an ecosystem to identify, role in job creation.5 However, the that sap productivity, such as low develop, and scale new regulatory environment is difficult technology adoption due to limited solutions in terms of multiple procedures and access to finance. As a result, SMEs TCS’s Co-Innovation Network the high paid-in capital required contribute less to GDP than they (COIN) comprises customers, alli- to start a new business. As a result, might otherwise. (See Figure 4.3) ance partners, venture capitalists, 94% of SMEs are currently unregis- start-ups, academic institutions, and tered, which leaves them struggling The role of the private sector industry groups organised to create with issues such as a shortage of Although government plays a vital a research and innovation ecosys- skilled workers, limited market role in enabling entrepreneurial- tem. Through COIN, TCS identifies exposure, and restricted access to ism, it’s the private sector that has niche products, new products, and capital needed for growth. the most crucial part in developing disruptive innovations. TCS then entrepreneurs in India. It does this supports the entrepreneurs in developing client solutions, through its

94 PwC The role of entrepreneurs in India will be to provide variation and come up with innovative solutions. The role of the corporate sector will be to select and scale these ventures.

Porus Munshi Making Breakthroughs Happen

own capabilities and with the help invests in a controlling stake or as Clearly, such collaborations estab- of other COIN partners. COIN has a joint venture partner, and gener- lished between large private-sector established alliances with entre- ally takes a hands-on approach: players and small entrepreneurs preneurs in the US, Europe, and it closely manages its holdings, can be successful. At this critical Asia focusing on emerging areas influences business decisions, juncture in India’s business history, such as data-centre optimisation, and mentors management. It also the country needs more of them. on-demand distributed software shares best practices learned from If government and the corporate development, and compliance-cost- its earlier retail successes. For sector play their parts, a thriving reduction solutions.6 example, Future Ventures provides entrepreneurial ecosystem could distribution and logistics support, be the solution to India’s daunting Mentor entrepreneurs and along with fundamental business employment challenge. provide support through their expertise such as inventory manage- journey ment, advertising, and accounting Future Ventures is a venture-capital processes. Additionally, Future fund that targets the retail industry Ventures provides access to consul- and that has invested in more than tants, business networks, venture 15 Indian companies, including capitalists, and prominent speakers, BIBA, Anita Dongre Designs, Indus as well as one-on-one coaching. League Clothing, Capital Foods, Holii, and Indus Tree. The fund

95 96 PwC Chapter 5 The ease of doing business

The difference between what we do and what we are capable of doing would suffice to solve most of the world’s problems.

Mahatma Gandhi

There is a strong correlation India has a reputation for being between a country’s level of a difficult market in which to do economic development and the business. Investment plans are ease of doing business there. often abandoned, not because the Easing the ability to do business idea lacks merit but because the can smooth a country’s transition business environment presents too to higher-income status. If India many barriers. Regulations for tax aspires to more than 9% GDP compliance and audits, along with growth, it will have to improve its labour laws and constantly chang- business environment. Figure 5.1 ing government policies, create (on next page) illustrates a clear I The Ease of Doing Business index, published by the distinction between economic World Bank, ranks 189 global economies based on clusters based on GDP per capita how favourable each country’s regulatory environment is for doing business. A high ranking indicates an and the Ease of Doing Business environment more conducive to starting and operating rankings for different countries.I a business.

Future of India 97 In India, the government and private sector have to work together closely. It’s important for processes to be transparent. You need to have laws that are uniformly applicable without much discretion. You need both the legal system and the regulators to support a transparent and fair system.

Ajay Piramal Piramal Group

unnecessary complexity. India’s large and small will need to make current business environment can major investments. They will inhibit growth rather than serve as a also need to take bigger risks. springboard for Winning Leaps. Companies’ management will need to focus with laser-sharp precision Accomplishing Winning Leap on operational issues. And entre- transformations across the many preneurs will need to incubate new different sectors of the economy businesses. All these efforts require we’ve identified requires an enor- developing new strategic and mous effort. Given the nonlinear operational capabilities. Only then nature of the solutions we envision, will India be able to realise its true Winning Leaps require leadership potential—and achieve its goal of a from both government and diverse US$10tr economy through a path of private-sector entities. Companies inclusive economic growth.

Figure 5.1: Relationship between GDP per capita and Ease of Doing Business rankings

United States 45,000

40,000

35,000

30,000

25,000 South Korea 20,000

15,000

GDP per capita (constant 2005 USD) 10,000 Malaysia 5,000 Thailand China India

0 20 40 60 80 100 120 140 160 EODB rank High income Upper middle income Lower middle income

Sources: World Bank

98 PwC Future of India 99 The costs and complexities India has historically performed The challenges of doing business of doing business in India poorly on various benchmarks in India extend across multiple gauging the business environment, components of the World Bank’s as indicated by the World Bank’s ranking, and in certain areas India Ease of Doing Business ranking. ranks near the very bottom of 189 Currently, India ranks 134 out of countries ranked. (see Figure 5.3) 189 countries, below countries such as Indonesia, Brazil, and China. Areas such as starting a business, (See Figure 5.2.) The reasons for paying taxes, and enforcing con- its poor performance are straight- tracts significantly depress India’s forward: unnecessary costs, overall ranking. For example, India the difficulty of complying with ranks 186 out of 189 countries in complex regulations, and frequent enforcing contracts. As Figure 5.4 delays in regulatory decisions. shows, it takes nearly four years on average to enforce a contract in India, compared with only eight months in South Korea, and the cost of enforcement in India is far higher.

Figure 5.2: Ease of doing business: India versus Figure 5.3: How India ranks in each component criteria of the Ease of selected countries Doing Business index

Ease of Doing Business rank

Starting a 1. India 134 Business 179 Start-up Dealing Indonesia 120 w/Construction 182 Permits 2. Getting Brazil 116 111 Getting Electricity a location

Registering 92 China 96 Property

South Getting 7 28 Korea Credit 3. Getting Protecting finance US 4 34 Investors Paying Taxes 158 0 30 60 90 120 150 4. Daily Sources: Doing Business Project, World Bank Trading Across operations 132 Borders

Enforcing 186 Contracts 5. During Resolving 121 tough times Insolvency

100 PwC Figure 5.4: Contract enforcement: how India compares with select countries

7 Rank Time (days) Cost (% of claim) Procedures

Korea 2 230 10.3 33

Brazil 121 731 16.5 44

China 19 406 11.1 37

Malaysia 30 425 27.5 29

India 186 1420 39.6 46

Sources: Doing Business Project, World Bank

In India, contract risk is a problem companies. One minor dispute that that cascades through the larger rapidly escalates could be enough economy. One of its repercussions is to disrupt all other companies along that companies often have difficulty the supply chain. Without any quantifying the risk of their busi- guarantee that this dispute could ness relationships. New businesses be readily resolved, the disruption must go to extraordinary lengths to could extend for years, destroying prove that they would be a reli- value for all involved. able partner, an effort that often hampers their growth and expan- This is just one example of how sion. Complex business activities India’s business environment puts that require multiple, interlinked the country at a clear disadvantage commercial agreements have also relative to other countries it com- become substantially riskier. In the petes with for foreign investment. modern industrial supply chain, Foreign companies invest else- there may be hundreds of service, where, and even Indian companies maintenance, delivery, and other often locate their primary activities agreements between numerous overseas, thereby reducing the level of economic activity and limiting opportunities at home.

Future of India 101 Government as an Beyond the performance in any No country can claim to strike a enabler of business international ranking, what’s even perfect balance between regulation more important is creating an envi- and free enterprise. India could bor- ronment in which businesses want row from the experiences of global to take risks because they believe exemplars that have faced similar that in doing so they could reap issues in the past. Figure 5.5 lists financial rewards. Governments many practical reform measures looking to support an economic adopted by other countries that system that contributes to develop- could be applicable to India. ment should care about promoting fair and effective regulation that For some business activities, enact- conforms to the nation’s unique ing reforms will require a shift in business and social climate. attitudes as well as policy changes, both of which will invariably take time. Fortunately, though, there are areas in which reform is possible in the near and longer term.

102 PwC Figure 5.5: Reforms enacted by other countries to ease business formation and activity

Starting a Dealing with Paying Trading Enforcing Resolving business construction taxes across contracts insolvency permits borders

179* 182* 158* 132* 186* 121*

What other countries with similar problems have done: China China China China China South Korea • Exempted micro • Centralised • Unified the corporate • Improved trade • Amended civil • Expedited the and small preconstruction tax regimes for finance by relaxing procedure code to insolvency process companies from approvals domestic and its trade credit streamline and speed by implementing paying several • Electronic foreign enterprises rules up court proceedings a fast track administrative and clarified the for company application Mexico South Korea fees from calculation of rehabilitation permitted in • Made trade easier and Brazil 2012 to 2014 taxable income Shanghai and by implementing • Implemented an Germany for corporate South Korea Beijing an electronic single- electronic system to • Adopted a new income-tax • Introduced an window system file initial complaints insolvency law that Singapor e purposes online one-stop facilitates in-court • Allow low-risk Bangladesh shop for starting South Korea restructurings industries to • Implemented a new business • Merged several of distressed submit document automated customs- taxes, allowing joint companies • Removed online clearance procedures, payment of several and increases minimum capital which have reduced and contributions participation requirement, the time for clearing by creditors removed the • Increased use of goods notary role, cut online tax payment taxes, put time limits on VAT • Reduced the profit registration, and tax rate made registration payment online

*India’s EODB rank

Sources: World Bank, PwC analysis Future of India 103 Figure 5.6: Simplifying corporate registration

Procedure for business entity Authority Recommendation

Ministry of Obtain Director Identification Corporate 1 Number (DIN)* Affairs (MCA) New Step 1: Offer option to obtain a digital signature Obtain digital Certifying when applying for the DIN 2 signature certificate Authorities

Reserve the company New Step 2: name with the Registrar MCA 3 Register the company of Companies

Pay stamp duties online, file all incorporation forms 4 MCA New Step 3 and documents, and obtain certificate of incorporation

5 Create a seal Agencies Eliminate

Visit an authorised franchise 6 appointed by NSDL/UTIITSL Income Tax to obtain a Permanent Account Dept. Number**

Obtain a tax account number Income Tax. for income taxes deducted 7 Dept. New Step 4: at source Require details to be submitted on one form after name confirmation and submitted to Register with Office of Municipal the MCA for processing. MCA then issues all Inspector, Mumbai Shops 8 Corp. related numbers such as the PAN and Tax and Establishments Act Deduction and Collection Account Number,† along with the Corporate Identity Number State (CIN)†† such as the PAN and Tax Deduction Register for Value-Added Tax 9 Government and Collection Account Number,*** along with the Corporate Identity Number (CIN)

State Register for profession tax 10 Government

Ministry of Register for Employees’ Labour & 11 Provident Fund Organisation Employment

* The DIN is a mandatory unique identification number provided to an existing or potential director of a company incorporated in India. ** National Securities Depository Limited (NSDL) and Unit Trust of India (UTI) Infrastructure Technology and Services are agencies that issue the Permanent Account Number (PAN), a unique identifier for income-tax payers in India. † The TAN is required by all persons responsible for deducting or collecting tax in India. †† The CIN acts as a unique identifier for all companies, listed and unlisted, registered in India. Sources: World Bank, PwC analysis

104 PwC It is difficult for companies to spend time on innovation and growth because the majority of the time of business leaders today is spent in fighting fires. We need better regulations and not necessarily lesser regulations.

Gopal Jain Gaja Capital Partners

Shorter term: clearing the requirements for entrepreneurs of relevant corporate information path for business formation with a turnover of less than INR to the various appropriate regula- Administrative simplification could 50 million. But even incremental tory agencies, would substantially substantially ease the process of changes to existing regulations reduce the burden of compliance for establishing a new business in India. could have a major impact in a new businesses. (See Figure 5.6.) Doing so could deliver immediate relatively short time. benefits: it would shift informal Administrative simplification could businesses to the formal economy, Current procedures for registering pave the way for further reforms it would encourage entrepreneurs a new business require authorisa- (such as lowering the requirement to launch new ventures, and it tion from multiple and disparate for paid-in-capital), some of which would enable foreign companies to regulatory agencies at both the might require new legislation. This establish operations in India with state and national levels. Adopting approach could help India advance ease. One radical solution to jump- a single-window approach, in from laggard to leader in facilitating start business formation would which the government is respon- new business formation. be to remove all administrative sible for ensuring the distribution (See Figure 5.7.)

Figure 5.7: How simplification improves a country’s “starting a business” ranking

Countries ranked 1-34

No. of Procedures: 3-5 Countries ranked Processing: online, single form 100-125 Time (days): 5 to 6 Cost (% of income): <7% No. of Procedures: 8-10 Paid in capital (%): 0% India’s rank Processing: online systems 179 Cost (% of income): 7 to 14% Long-term actions Paid in capital (%): 0 to 78% No. of Procedures: 12 Processing: paper-based Time (days): 27 Short-term actions Cost (% of income): 47% Paid in capital (%): 125%

179 Starting a business rank 1 Sources: World Bank, PwC analysis

Future of India 105 Figure 5.8 How India compares in ease of paying taxes Shorter-term: consolidating and digitising taxation India’s performance in all of the Indicator India South Asia OECD components of the ease of paying Payments 33 33 12 taxes measure is much lower than (number/ year)* that of developed economies, as well as the regional average. Time 243 328 175 (See Figure 5.8.) (hours/year)** India could substantially boost its Profit tax 24.4 16.8 16.1 ranking in this measure through (%)*** specific, targeted reforms. Permitting annual instead of Labour tax & 20.7 9.0 23.1 monthly filings for pension and contributions (%)†

Other taxes 17.7 14.8 2.1 (%)††

Total tax rate 62.8 40.6 41.3 (% profit)

* The total number of tax payments per year. The indicator reflects the total number of taxes and contributions paid, the method of payment, the frequency of payment, and the number of agencies involved for a standardised case during the second year of operation. ** The time it takes to prepare, file, and pay (or withhold) the corporate income tax, the value-added tax, and social security contributions (in hours per year). *** The amount of taxes on profits paid by the business as a percentage of commercial profits. † The amount of taxes and mandatory contributions on labour paid by the business as a percentage of commercial profits. †† The amount of taxes and mandatory contributions paid by the business as a percentage of commercial profit that are not already included in the categories of profit or labour taxes. Sources: Doing Business Project, World Bank, 2014

106 PwC related taxes would reduce the Longer term: fostering Regulatory reforms, such as the number of tax payments businesses mind-set change simplification of procedures and must make each year by 24. India Reforming India’s business environ- reduction of compliance costs, will has already implemented some ment will require close attention to go a long way toward creating a tax-simplification measures, such as simplifying regulations and alleviat- more welcoming environment for abolishing the fringe-benefit taxII,in ing the burden of compliance, both business. But it will take more. 2011, and adopting electronic filing financial and administrative. But India needs a transformation in the and payment for the value-added there is a broader issue at stake. mind-set prevailing in the public and tax (VAT)III, in 2012. These are private sectors. This new mind-set among the kinds of reforms India To meet India’s upper-middle- must be one of mutual trust and should be pursuing in its efforts to income objective and the goal of a respect so that the two sectors can implement global US$10tr economy will require levels forge myriad new partnerships and leading practices and improve of spending and investment that foster the cooperation and col- its investment climate. are not currently possible, given laboration needed to solve some of the government’s fiscal constraints. India’s greatest economic and social This can happen only in a vibrant challenges. This shift in mind-set and economy, in which the private the ensuing partnerships would in sector—a key source of Winning themselves enable Winning Leaps. Leap solutions—can thrive. And the private sector can thrive only when the hurdles to business formation and business activity are removed.

Intellectual property rights

Promoting innovation is an important strategy in must have in place robust institutional and legal advancing the Winning Leap. The link between mechanisms to protect intellectual-property innovation, both technological and organisational, rights. Doing so provides the necessary incentives and economic growth is well established in aca- for innovation, business investment, and stability. demic research. Indeed, research by Antonio Fatas and Ilyan Mihov of INSEAD indicates that growth To catch up economically, relatively poorer in per capita GDP is mainly a function of innova- countries must still rely on the joint participation tion and its adoption.2 of foreign entities to innovate and share innovation with domestic partners. Incentives must be Fatas and Mihov found that promoting innovation in place to encourage such foreign-domestic is a particularly defining characteristic of countries cooperation. Foreign market participants need that are becoming developed economies. To foster the assurance that their innovations can generate innovation, both home-grown and imported, the right returns. Clearly, intellectual-property and to attract international partners that bring protection must be a top priority on India’s technology and global best practices, a country national agenda.

II The fringe-benefits tax, paid by the employer, was based on the value of the fringe benefits (perks besides wages) provided to employees. III The value-added tax, or VAT, is an indirect tax on the consumption of goods, paid whenever value is added at a stage of production and at the final sale.

Future of India 107 Chapter 6 Capitalising on India’s growth story

108108 PwC PwC FDI flowing into India would have to more than double as a percentage of GDP by 2034. To boost FDI to these levels, the government and private We want deeper sincerity of motive, a greater sector will need to build relation- courage in speech and earnestness in action. ships with international companies. Private domestic investment (bank Sarojini Naidu lending, private domestic capital, retained earnings of Indian companies, and household savings) along with government investment will If India increases its gross domestic country may need to increase its have to grow five- and ninefold, product (GDP) to US$10tr between annual investments to six times the respectively. These investment now and 2034 (up from US$2tr in figures in 2014—through foreign boosts have close interconnections 2014), it could push its per capita direct investment (FDI), private with the ten vectors for growth GDP from US$1,500 to US$7,000 domestic investment, and govern- discussed in earlier chapters. For in that same timeframe. To achieve ment investment. The amount of instance, an increase in domestic such unprecedented growth, the investment hinges on more financial

The Future of India 109 inclusion and circulation of savings We then analysed possibilities for Our base-case scenario, which we in the economy (the vector “Access the future, informed by an in-depth call Troubled Waters, takes these to banking services”). Additionally, look at operational changes that realities into account. It forecasts the those directing new investments may be required for each vector. Indian economy to grow by around must strive to balance regional From this analysis, we defined three 5.5% annually between 2014 and disparities, keeping in mind the alternative scenarios reflecting an 2034. This is fast growth in absolute tensions within India’s democracy. accelerated path to growth and terms, but it’s slow when one consid- They must also weigh the impacts development for India. The scenar- ers India’s current demographic of their investments beyond just ios emphasise different focuses for boom and weak starting position in economic terms—including social investments; different outcomes in terms of per capita GDP—which was and environmental outcomes. terms of GDP growth; and different about US$1,500 in 2014 (real GDP/ imperatives for corporations, entre- capita, US$, 2010 market exchange Raising per capita GDP through preneurs, and government. rate) versus US$5,800 in China and smart increases in investment will US$51,000 in the US in 2014. expand overall prosperity for Indian Base-case scenario: citizens, enable new businesses to Troubled Waters1 Comparing our base-case forecast emerge, and help Indian companies India’s economy doubled in size with other countries’ expected grow. However, to make this leap, from 2000 through 2010, powered increases in per capita GDP clearly private-sector and government lead- by an average GDP growth rate of reveals the constraints on India’s ers will need new “will sets” and 7.6%. But more recently, perfor- long-term growth potential. (See “skill sets.” mance has proved disappointing, at Figure 6.1.) Over the next 20 years, just 5% average growth in the past India’s per capita GDP will lag To see how different potential two calendar years. Cyclical factors, behind Asia’s growth rate. By 2034, solutions could affect India’s ability such as a lower global economic income levels (PPP adjusted) in to achieve its Winning Leap, we growth rate and high commodity India could be at par with those looked at recent history to develop prices, have combined with struc- in Vietnam, and the income gap a base-case scenario. This scenario tural factors (underinvestment in between India and Indonesia could envisions moderate gains based on infrastructure, an unproductive widen. The gap between India and the current business environment business environment, and poor China could increase radically— and existing growth constraints. education and health outcomes) to from about US$3,300 in 2010 to weaken India’s growth. more than US$17,000 in 2035.

110 PwC Figure 6.1: Gaps in per capita GDP between India and other Asian countries

Comparison with other countries GDP per capita, US$, 2010 PPP GDP per capita, US$, 2010 PPP $12,000 $30,000 10894 27013 10,000 25,000 9704 9992 8,000 20,000 ~17,000 6,000 15,000

4,000 10,000 3871 9992 3421 2,000 2598 5,000 ~3,300 6731 3421 0 0 2010 2034 2010 2034 Vietnam India Indonesia India China

GDP per capita, US$, 2010 MER 51000 $4000

3500 3665 3000 5800 3112 2500 2509 2509 2000 1979 1500 1555 1000 1225 500 0 2010 2014 2020 2025 2030 2034 China India US

Real GDP growth % y-on-y Forecast 10

0 2010 2015 2020 2025 2030 2034 Sources: Oxford Economics, Haver Analytics

Future of India 111 Alternative scenario 1: Pushing old ways faster to make incremental improvements2

• Rapid improvement in physical infrastructure and human capital, using existing methods % $ 6.6 6.8 • Marginal improvements in labour productivity GDP growth trillion • No significant improvement in investments by private sector and foreign investors

by 2034 (2010 prices)

Our first alternative scenario paints Figure 6.2: Real GDP growth and employment in alternative scenario 1 a picture in which India continues on its path today with incremental Real GDP growth changes that are achieved through Forecast % y-on-y faster implementation of existing 10 strategies. In this scenario, rapid improvements in physical infra- 9 structure and human capital would 8 boost growth levels above the 5.5% 7 annual improvements forecasted in S1 our baseline scenario. For example, 6

Scenario 1 assumes that India will 5 B achieve universal access to power 4 (one of the ten growth vectors) by the late 2030s. For transportation 3 and communications, the current 2 gap in investment will be narrowed 1 by roughly 33%, primarily through 0 government-led investment.I 2010 2014 2018 2022 2026 2030 2034 Sources: Oxford Economics, Haver Analytics Labour productivity will rise marginally, thanks to improvements Millions in education, health outcomes, 700 and institutional reforms promot- S1 ing formal employment. By 2035, 600 B access to universal primary educa- 33m more jobs tion and higher-quality secondary 500 over baseline and tertiary education will enable one in three students to progress to 400 postsecondary schooling. Although 300 improvements in education outcomes will come gradually, they will 200

100

I Per the Planning Commission, infrastructure investment in transportation and communications must 0 be 4.2% of GDP to achieve 9% growth. In FY2012, the 2010 2014 2018 2022 2026 2030 2034 investment was only 3.5%, and it has fallen since. This scenario assumes that an additional 0.33% of GDP will S1 Scenerio 1 B Baseline Forecast be invested to partially close the gap. Sources: Oxford Economics, India LFS

112 PwC have big impacts—including greater The scenario also assumes a moder- an additional 33m people employed employability for Indian citizens, a ate impact on projected GDP. The by 2034. (See Figure 6.2.) rise in the labour-force participation rate increases steadily relative to rate to 72%, and greater productiv- the base-case scenario, peaking in GDP in scenario 1 is 1.2 times larger ity in multiple sectors. the early 2020s. In those years, the in 2034 than in the base case and is bulk of the additional investment worth US$6.8tr (2010 prices). The Enabling almost linear economic will take place –driven primarily by expansion in output from the vari- growth, this scenario assumes no the government. Although the pace ous sectors in the economy fuels the significant changes in the invest- falls back slightly over the forecast growth in per capita GDP, allowing ment plans of private companies horizon, it remains elevated over the average Indian to catch up with and foreign investors compared that of the base case. The CAGR for the average Indonesian (in PPP with their plans in the base-case GDP for the scenario is 6.6% higher terms). However, India continues scenario. Instead, the scenario than that in 2014-2034, compared to lag behind China in this scenario assumes that the government will with 5.5% in the base case. There (per capita GDP at PPP rates). finance the bulk of the spending is also a substantial increase in (See Figure 6.3.) outlined above. employment (net job creation), with

Figure 6.3: Real GDP and per capita in alternative scenario 1

US$ bn, 2010 prices $8000 $6.8tr 7000 S1 GDP per capita, nominal, PPP, 2034 6000 US$ per thousand B 50 5000 $5.6tr 46.9 40 4000 30 3000 20 2000 18.9 18.7 15.6 1000 10

0 0 2010 2014 2018 2022 2026 2030 2034 India Indonesia India China (Baseline) (Scenario) S1 Scenario 1 B Baseline Forecast

Sources: Oxford Economics, Haver Analytics

Future of India 113 Alternative scenario 2: Turbocharging investments to accelerate growth3

• Accelerated investments without major technological transformation. 7.0% $7.4 • Rapid improvement in physical capital accumulation; GDP growth trillion human capital improvements as in scenario 1. • High FDI inflows and increased government borrowing, increased domestic investment.

by 2034 (2010 prices)

Our second alternative scenario Figure 6.4: Real GDP growth and total employment in alternative scenario 2 envisions India accelerating investments to aggressively spur growth, Real GDP growth though without making major technological transformations. In % y-on-y this scenario, growth is generated 10 through rapid accumulation of 9 physical capital, partly enabled by 8 improvements in human capital, as 7 in scenario 1. In particular, India’s S2 infrastructure network expands 6

rapidly thanks to additional 5 B investment in the transportation, 4 communications, and power sectors. Agricultural productivity also 3 improves with expansion in irriga- 2 tion coverage. The transportation, 1 communications, and power sectors are the main beneficiaries in this 0 2010 2014 2018 2022 2026 2030 2034 scenario, with swift expansions in their networks. But as a result of the improved coverage of these sectors, Total employment investment in other sectors (includ- Millions ing manufacturing and agriculture) 700 increases as these sectors benefit S2 from more reliable transportation 600 B and communication networks as 33m more jobs well as access to power. 500 over baseline

To support the pace of change 400 envisioned in this scenario, the 300 private sector would need to fund a significant proportion of additional 200 investment required in sectors related to physical infrastructure. 100

0 2010 2014 2018 2022 2026 2030 2034

S2 Scenario 2 B Baseline Forecast

Sources: Oxford Economics, India LFS

114 PwC As a result of the improved coverage to higher deposits in banks, which in over the scenario 1. This scenario in these areas, investment in other turn enable greater lending. envisions an additional 33m people areas, including the manufactur- employed in 2034, as in scenario 1. ing and agriculture sectors, also Scenario 2 foresees a more substan- (See Figure 6.4.) increases as a secondary effect. tial impact on GDP growth than Funding for this additional invest- scenario 1. Growth rises immediately GDP is 1.3 times larger in 2034 ment will come from increased and peaks in the early 2020s, when than in the base case, and stands at government borrowing (for govern- the bulk of the additional investment US$7.4tr (2010 prices). The expan- ment-led infrastructure projects) has been made. Although the pace sion in output helps increase per and higher FDI inflows. falls back slightly over the forecast capita GDP—which again boosts horizon, it remains elevated. The India’s position relative to its peers. Private-sector investment also CAGR for GDP in this scenario is Once more, however, this increase receives a boost from reforms in the 7.0%, compared with 5.5% in the is not enough to substantially lessen banking sector. Such reforms expand base case. However, there is no the prosperity gap between India access to financial services, leading incremental increase in employment and China. (See Figure 6.5.)

Figure 6.5: Real and per capita GDP in alternative scenario 2

GDP, real Bns US$, 2010 prices $8000 $7.4tr S2 7000 GDP per capita, nominal, PPP, 2034 6000 US$ per thousand B 50 5000 $5.6tr 47.0 40 4000 30 3000 20 2000 20.6 18.7 15.6 1000 10

0 0 2010 2014 2018 2022 2026 2030 2034 India Indonesia India China (Baseline) (Scenario) S2 Scenario 2 B Baseline Forecast

Sources: Oxford Economics, Haver Analytics

GDP per capita, nominal, 2034 US$ per thousand 60

50 48.0 40

10 16.0 6.2 8.2 0 India India Indonesia China (Baseline)(Scenario)

Future of India 115 Figure 6.6: Manufacturing and services’ share of GDP in alternative scenario 2

Manufacturing share of GDP Services share of GDP % % 19 75 74.3 18 18.4 73 73.3 17 71 16.7 16 16.3 16.3 69 68.4 68.4 15 67

14 65 2014 2034 2014 2034 Baseline Scenario 2

Source: Oxford Economics

Scenario 2 envisions an increase in from improvement in human secondary impacts in the form of manufacturing’s share of GDP rela- capital, which directly enhances the more private sector investment and tive to the base case. However, the average worker’s productivity; an higher labour productivity. We can increase is larger than in scenario 1 enhanced infrastructure network, grasp this difference by examining and baseline, primarily owing to which enables workers to be more total investment and FDI inflows. the sharpened focus on physical- productive; and spillovers from (See Figure 6.8.) The bulk of the infrastructure investment, which these two effects to other workers increase in FDI inflows comes disproportionately benefits manu- across industries, which benefits the from the additional investment in facturers. (See Figure 6.6.) whole economy. (See Figure 6.7.) infrastructure. But domestic private-sector investment receives an With the economy growing signifi- The key difference between sce- added boost when the strengthened cantly faster in scenario 2, labour nario 1 and scenario 2 is the second economic environment encourages productivity rises well above that scenario’s additional investment in companies to expand capacity to in the baseline. This increase stems physical infrastructure, which exerts meet new demand.

Figure 6.7: Output per worker in alternative scenario 2

Thousands US$, 2010 prices $400

350 S2

300 B 250

200

150

100

0 2010 2014 2018 2022 2026 2030 2034

S2 Scenario 2 B Baseline Forecast

Sources: Oxford Economics, Haver Analytics

116 PwC We have to take cognizance of four important factors for the leap to happen. Firstly, we need to understand the demographics of the country. Secondly, we need to look at the way global markets and the regulatory environment is moving. The third aspect is to adopt technology required to create scale. And lastly, we need to permeate into untouched rural markets.

Sanjay Purohit Infosys

Figure 6.8: Inward FDI and total investment in alternative scenario 2

Inward FDI % difference from baseline 16

14 S2 12

-2 2010 2014 2018 2022 2026 2030 2034

Total investment Bn US$, 2010 prices $2,500 S2

2,000 B

1,500

1,000

500

0 2010 2014 2018 2022 2026 2030 2034

S2 Scenario 3 B Baseline Forecast

Sources: Oxford Economics, Haver Analytics

Future of India 117 Alternative scenario 3: Making the Winning Leap with new methods and technologies4

• Radical step-up of investment in technology R&D, innovation, physical infrastructure, human capital % $ • Rapid increases in productivity enabled by 9 10.4 technological transformation GDP growth trillion • Significant increases in investment through domestic and foreign sources and increased government borrowing

by 2034 (2010 prices)

Scenario 3 builds on scenarios 1 abroad, indigenous technological are allowed to set up operations. and 2. In this scenario, India radi- innovation, further gains in human These changes generate significant cally steps up investment on all three capital, and reforms that encourage technological spillovers, which help important fronts—technology R&D more active use of bank accounts by boost GDP. and innovation, physical infrastruc- consumers as well as more efficient ture, and human capital—leading to allocation of financial capital. Thanks to the shift in focus to a significant and sustainable jump higher-value-added sectors (such as in economic growth. The growth is Speed of technological progress is high-tech manufacturing and com- fuelled primarily by greatly enhanced the key differentiator between this munications), more young people labour productivity. This improve- scenario and the previous two. In delay entering the labour force so ment in productivity stems from this scenario, private sector invest- that they can attain higher levels of domestic reforms fostering innova- ment in physical and human capital education; in particular, tertiary edu- tion across large parts of the economy (and in some cases, support by the cation. Those who do enter the job and an opening up of the economy government) enables Indian com- market benefit from strengthened to foreign participation, which spurs panies to better serve the domestic on-the-job training programmes, technological spillover from interna- market. Spending on R&D soars, as such as apprenticeships. tional markets into India. companies seek to investigate new production methods and implement Reforms in the financial sector This scenario assumes the much- the most successful innovations. encourage greater private participa- needed remedial investment in tion in banking and support more physical infrastructure and human In addition, as the economy is efficient allocation of financial development laid out in scenarios opened up, foreign companies bring capital. This, in turn, raises the 1 and 2. But in addition, it assumes their production techniques into productivity of investments under- that productivity increases are India and adapt them to the Indian taken, which further spurs GDP further spurred by additional business environment. FDI flows growth. In addition, the govern- investment in digital technology, more heavily into India, and greater ment invests more to improve and technological know-how from numbers of foreign companies expand India’s digital connectivity.

118 PwC Figure 6.9: Real GDP and total employment in alternative scenario 3

Real GDP % y-on-y 12

8 S3

B 4

0 2010 2014 2018 2022 2026 2030 2034 Sources: Oxford Economics, Haver Analytics

Encouraged by progress on these Total employment fronts, businesses collectively ramp Millions up their R&D spending from a mere 800 0.8% of GDP in 2013 to 2.4% in S3 2034. The potent combination of 700 more investment in R&D, technolog- B 600 86m more jobs ical spillovers, and better allocation over baseline of financial capital rapidly acceler- 500 ates GDP growth, which reaches 9% 400 per year over multiple years. 300 The key driver of this transformation is technology. Thus, the impact 200 on total employment is notable with 100 an additional 86m jobs created in scenario 3 relative to the base case 0 over 20 years. (See Figure 6.9.) 2010 2014 2018 2022 2026 2030 2034 2038

That translates into roughly 12m S3 Scenario 3 B Baseline Forecast new jobs created per year over the Sources: Oxford Economics, India LFS 20 years. And almost all workers are far more productive in scenario 3, demonstrating the beneficial impact of additional investment in technology, R&D, and human-capital development.

Future of India 119 Figure 6.10: Real and per capita GDP in alternative scenario 3 Scenario 3 sees the Indian economy reaching US$1.9tr in 2024 and US$10.4tr in 2034—almost twice GDP, Real the size in the base case. This shift is Bns US$, 2010 prices also reflected in the country com- $12,000 $10.4tr parisons, with per capita GDP in S3 PPP terms comfortably overtaking 10,000 that of Indonesia by 2034. (See Figure 6.10.) 8,000 The transformation envisioned in 6,000 this scenario catalyses dramatic B shifts in the economy’s composition. $5.6tr 4,000 The proportion of GDP contributed by value-added manufacturing reaches about 25%—a change 2,000 comparable to that experienced in other emerging markets that have 0 transformed their economies, such 2010 2014 2018 2022 2026 2030 2034 as China and South Korea. S3 Scenario 3 B Baseline Forecast

GDP per capita, nominal, PPP, 2034 GDP per capita, nominal, 2034 US$ per thousand US$ per thousand 50 60 47.0 40 50 48.0 40 30 29.0 30 20 18.7 20 15.6 10 10 16.0 10.0 6.2 0 0 India Indonesia India China India India Indonesia China (Baseline) (Scenario) (Baseline)(Scenario) Sources: Oxford Economics, Haver Analytics

120 PwC Gains in manufacturing come at the Figure 6.11: Manufacturing and service share of GDP in alternative scenario 3 expense, primarily, of the service sector, which benefits less from the Manufacturing share of GDP Services share of GDP improvements in infrastructure % % and the technological revolution 25 75 characterising this scenario. Thus, 74.3 the service sector registers slower 20 22.9 73 growth than manufacturing during 2014-2034. (See Figure 6.11.) 15 16.3 16.3 16.7 71

10 69 With the major gains in this scenario 69.3 coming from indigenous technologi- 68.4 68.4 5 67 cal progress, labour productivity advances rapidly compared with 0 65 the base case. (See Figure 6.12.) But 2014 2034 2014 2034 when we consider those advances in Baseline Scenario 3 an international context, even this Source: Oxford Economics transformation doesn’t have India overtaking many other countries. China, Brazil, Russia, and most other major emerging markets will remain well ahead of India in 2034 Figure 6.12: Output per worker in alternative scenario 3 in terms of labour productivity. Thousands US$, 2010 prices $500 S3 450 400 350

300 B 250 200 150 100 50 0 2010 2014 2018 2022 2026 2030 2034

S3 Scenario 3 B Baseline Forecast

Sources: Oxford Economics, Haver Analytics

Future of India 121 In contrast to scenario 2, scenario Figure 6.13: Inward FDI and total investment in alternative scenario 3 3 assumes that foreign companies have significantly more access to Inward FDI India’s economy. As a result, FDI into % difference from baseline India increases rapidly (more than doubling by 2034), facilitating tech- 300

nological spillover. (See Figure 6.13.) S3 250 In addition, domestic companies 200 feel encouraged to invest more. Although the increase in productiv- 150 ity reduces the cost of any specific project, the reduction in production 100 costs boosts consumer demand. Thus companies expand their capac- 50 ity more rapidly than in our baseline scenario. 0

-50 2010 2014 2018 2022 2026 2030 2034

Total Investment Bn US$, 2010 prices $4,000

3,200

2,400

B 1,600

800

0 2010 2015 2020 2025 2030 2034

S3 Scenario 3 B Baseline Forecast

Sources: Oxford Economics, Haver Analytics

122 PwC India clearly needs systemic changes around gender equality and security. These have not only social equity implications but also economic implications. For instance, negative realities of security of women in India not only impede the tourism sector but also raise fundamental questions on the efficacy of citizen protection mechanisms.

Naina Lal Kidwai HSBC

Figure 6.14: Government budget in alternative scenario 3

% of GDP 0

-1

-2

-3 B S3 -4

-5

-6

-7

-8 2010 2015 2020 2025 2030 2034

S3 Scenario 3 B Baseline Forecast

Sources: Oxford Economics, Haver Analytics

The government makes additional toward the private sector, in terms of investments to expand the econo- solution development and deliv- my’s digital connectivity, and this ery. However, the government will worsens India’s budget deficit in continue to play an important role the short run. (See Figure 6.14.) by building national platforms that But over time, the rosier economic enable improved physical and digital outlook eases financial pressure on connectivity. In addition, the govern- the government, and by the 2030s, ment will have to manage increased its borrowing position is not much urbanisation in India, which it has worse than in the base case. already initiated with its smart-cities initiative. Investments in the physical By 2034, India would have to invest and digital connectivity platforms on an annual basis six times the will require significant contribution investments it did in 2014. The from the government, which could nature of the economy will also shift increase the national deficit.

Future of India 123 Roadblocks to the Using the ESI, we’ve organised long- Personal and digital security Winning Leap5 term roadblocks to the Winning Citizens participate in making their Becoming a US$10tr economy is Leap into the three categories society a better place when they an alluring vision for India, but mentioned earlier—human capital, believe that they’re safe, that the realising that vision won’t be easy. physical capital, and innovation rule of law prevails, and that anyone The nation will almost certainly capital—reflecting the major invest- can work and mingle in society encounter a number of daunting ment emphases featured in the without fear of suffering harm or roadblocks. Some of these will alternative growth scenarios. being subjected to prejudice and present short-term execution discrimination. A number of leaders challenges, and others will pose Human-capital roadblocks in our study voiced reservations longer-term difficulties because Roadblocks to strengthening human about the ability of India’s security they stem from complexities in capital include demographic pres- apparatus, judiciary, and jail system India’s economy, society, political sures as well as inadequate personal to provide adequate protection processes, and environmental and digital security. for citizens. In addition, as more conditions. In the preceding and more business and personal chapters of this report, we’ve Demographic pressure interactions take place online, focused on some of the immediate India’s demographic dividend will cybersecurity has become an imper- challenges. In the pages that follow, serve as a wellspring of long-term ative. The government’s ability to we turn to the more complex and economic growth if the economy provide both personal and digital persistent roadblocks. can create an adequate number of security to its citizens will be crucial jobs for India’s young people in the for achieving the Winning Leap. We have used the Earth Security coming decades. Our economic Index (ESI) 2014 as a framework modelling suggests that only in Physical-capital roadblocks for highlighting key roadblocks and scenario 3—the Winning Leap—can Roadblocks to building up India’s risks. The ESI examines security India accomplish this scenario, physical capital include water scar- issues related to risks in eight key creating 240m new jobs, compared city, insufficient food and energy areas: land, population, fiscal stabil- with the 150m in the base-case security, and climate change. ity, energy, water, food, crops, and scenario. If only the base case is climate. The ESI provides a template realised, the resulting low employ- Water scarcity for formulating resource-efficient ment levels could trigger social The ESI points out that India will growth strategies for India’s corpo- instability in India. Early signs of suffer acute shortages of clean, safe rate and entrepreneurial sectors. unemployment-related stress are water starting as early as 2025. In It also analyses 200 countries, of evident in India’s northern states, as some larger Indian cities, water which 17 are identified as having huge numbers of people migrate to scarcity is already eroding the quality the highest relevance to security. the Mumbai and Delhi metropolitan of daily life as well as hampering India is one of the 17.6 areas in search of paid work. industrial growth, as evidenced by the shortage of water in power plants

124 PwC and other industrial facilities. In Food security concentrated with salt, and thus India’s northern agrarian zone, tradi- With an already large and grow- less productive. Food production, tionally dependent on groundwater ing population, food security is an security, and distribution as well for irrigation, the water table is fall- intensifying concern in India. Low as related areas of water manage- ing because of overuse of this scarce crop yields and concerns about ment for agriculture must be on the resource.7 The inability to irrigate the security of land tenure make it discussion agenda in all public and crops would imperil food security. To difficult for land owners to make private forums. avoid this situation, businesses will sustainable investments in agricul- have to find innovative ways to use ture. Moreover, rapidly growing Energy security water more efficiently or decrease its urbanisation and industrialisation Even with resource-efficient meth- use in their operations, and growers are further increasing the demand ods implemented in Winning Leap will need new approaches for keep- for agricultural land to be used solutions, to realise India’s US$10tr ing their crops irrigated. Progressive for nonfarming activities such as GDP vision will require a consider- multinationals like The Coca-Cola development of urban housing able jump in energy consumption. Company are already actively work- or manufacturing facilities. Also, India’s fossil fuel capacity is insuf- ing to make their bottling plants as a consequence of overuse of ficient to meet energy demand, and water neutral. Indian companies can fertilisers, as much as one-third of the situation will likely worsen, take a page from such enterprises’ India’s farmland has become overly owing to insufficient mining and books to achieve similar gains.

Future of India 125 exploration activities that need could have sobering implications technology into the country.12 As advanced technologies.8 The nation for the country’s overall climate. India contemplates building a much is importing energy resources; net Recent work done by TERI and larger and more complex techno- energy imports in India were 6.3% USAID also points to the impact of logical and digital economy, the of GDP in 2013-2014.9 But in the rising sea levels on India’s coast- ability to drive inclusive, sustainable long term, this approach will put line.11 Although climate change risk growth will hinge on organisa- an enormous drag on economic is difficult to mitigate, businesses, tions’ willingness to invest in R&D. growth. To avoid this consequence, insurance companies, and govern- Companies will make such invest- India will have to rethink its fuel ment leaders should factor it into ments only if they believe that the IP supply and bolster its power-gener- their decisions regarding long-term delivered by the investments will be ation capacity. The government will investments in Winning Leap solu- protected by stringent IP laws and also need to define policies enabling tions. timely intervention by the judiciary the development of infrastructure to enforce such laws. Without such for the use of alternative energy Innovation-capital roadblocks protection, the Winning Leap will sources and expansion of energy Roadblocks to bolstering India’s take place mainly on borrowed IP production. Fostering public aware- innovation capital are shortfalls in from international markets, which ness of energy conservation as a protection of intellectual property will weaken its true potential. way of life would help as well. (IP) rights and inadequate building of local governmental capabilities. Local capabilities building Climate change In India, delegation of power to the India’s economy, particularly in IP-rights protection individual states is encouraging its rural regions, is vulnerable to Continued weak IP laws and local development. Institutions at the vagaries of the monsoons. The enforcement that’s average (at the village, district, and state levels ESI considers this a serious risk to best) would limit businesses’ ability are gaining more decision-making the nation’s development, given to invest in the R&D so critical to power. Establishing tri-entity long-term climate change trends. innovation. Inadequate IP rights partnerships among corporations, The Himalayan ecosystem is also protection could also discourage entrepreneurial companies, and environmentally fragile, and major multinationals from setting up more empowered local govern- changes in the conditions there operations in India or bringing their mental bodies will be critical to the Winning Leap. For instance, a water-utility company can understand the municipal and social requirements of a small town only if The Winning Leap it has forged a relationship with the local municipal head. and decentralisation

Yet a number of leaders participat- ing in our study commented on the A focus on decentralised solutions, approaches and empow- deficit of leadership and techni- erment should be at the heart of the Winning Leap. India is cal capabilities at local levels. a vast nation with a multitude of different ethnic, linguistic, Such capabilities are essential for geographic sub-divisions that call for very different solutions. enabling decentralised growth, The devolution of power outlined in the 73rd and the 74th which is critical for innovation. amendments to the Indian constitution were first steps, albeit While central and state authori- baby steps in this process. However, building local capa- ties may have adequate training, bilities, avenues for greater local fiscal responsibility, and knowledge, and attitudes, there is empowering local administration need renewed focus over a risk that local bodies—municipal the coming decades. Corporations and entrepreneurs will corporations, gram panchayats, also have to build capabilities to work with this decentralised and district administrations—won’t polity and administration. . be sufficiently equipped to help implement Winning Leap solu- While the US democratic experience has a 170 year head tions. To mitigate this risk, the start over India, there are a number of lessons from its government will have to give local devolved polity. My personal experience living in the County bodies adequate financial and other of Boston shows how beneficial this can be. The County has resources so that they can become local control over education till high school, police, services more powerful growth enablers. like fire, parks, and waste removal, and local tax collection. In a nutshell it’s an empowered local government body that The roadblocks highlighted above is able to deploy its financial heft for the benefit of citizens. don’t cover all possible risks to Budgeting takes place after looking at specific local needs the Winning Leap. However, and spends. Solutions are developed with local citizens, understanding these longer-term, keeping them in confidence. This brings about a virtuous particularly challenging hurdles cycle where the authority of the local administration is can help all stakeholders in India’s matched by commensurate financial powers and amplified economy craft more informed and by collaboration with citizens. My own involvement in the thoughtful growth strategies for the affairs of the county has been enriching and far more than I coming decades. had anticipated before I moved here. Clearly the circumstances, evolution of polity, and socio-economic context of India and USA are starkly different. But the underlying democratic gene is similar. Can the Panchayat, municipal and district structures of India sink much deeper roots of development that the Winning Leap deserves?

S.P. Kothari Deputy Dean, Gordon Y Billard Professor of Management Director, MIT India Program MIT Sloan School of Management

Future of India 127 128 128PwC PwC Chapter 7 Realising our ambition

You can’t cross the sea merely by standing and staring at the water.

Rabindranath Tagore

India is contemplating its Winning Invest: Channel resources Leap at a time of heightened toward strengthening capabilities expectations and aspirations among essential for executing Winning all sectors of society. Our research Leap solutions shows that the private sector— established corporations and Lead: Foster a mind-set of change entrepreneurial companies—will that will inspire others to help play a critical role in orchestrating support the Winning Leap the Winning Leap and that the government can (and must) serve But how, exactly, can private-sector as a powerful enabler. The private players innovate, invest, and lead sector will need to do the following: in these ways? We recommend that they convene sector leaders Innovate: Create an innovation and reward problem solvers, help ecosystem while crafting and promote a culture of risk and executing Winning Leap solutions entrepreneurship, find new ways to walk hand-in-hand with government, and engage civil society. Below, we explore these pathways in greater detail.

Future of India 129 Convene sector leaders and Promote a culture of risk and reward problem solvers entrepreneurship We envision the creation of Winning Entrepreneurship will be a critical Leap sector councils comprising top component in the Winning Leap leaders from their respective approach. In India, entrepreneur- industries. Such councils could ship starts in families, when parents collectively provide a forum aimed encourage their children to explore at enabling the Winning Leap across their world and take risks under sectors. For instance, council a watchful, caring eye. It extends members could develop a Winning into society when citizens appreci- Leap prize, to be awarded to ate the value that entrepreneurs companies in their industry that create, and when young people have designed and executed new view enterprise as having a purpose solutions for surmounting their that goes far beyond just making industry’s toughest challenges and money. It reaches its apogee in the for encouraging improvements to private sector, when corporations ripple across to other sectors. Such and entrepreneurial companies a prize would highlight winners’ collaborate with citizens to commitment to Winning Leap create mutual benefit. solutions. The prize could take the form of money or other kinds of We see entrepreneurship in these support that would help companies forms emerging in pockets of India, build longer-term capabilities to but the private sector could create strengthen their industry and even greater value by taking a more to benefit their customers. comprehensive and institutional approach. For this reason, we Similarly, business leaders could suggest creation of an Enterprise come together on a higher level— Institute that: identifying particular regions of India that could serve as test labs for • Focuses on research on the Winning Leap solutions. Examples enterprise and publishes and include developing projects aimed celebrates success stories at cleaning the Ganges, addressing water shortages in a sustainable • Promotes points of view on scal- manner in Rajasthan, and providing ing innovation for the corporate power across rural Maharashtra. and the entrepreneurial sectors In these and other kinds of projects, diverse parts of the private sector • Fosters collaboration between could collaborate to solve critical entrepreneurs and national problems, test new innovations, and international institutions and look for scalable solutions. specialising in enterprise creation and growth

• Collaborates with the government to enhance programmes aimed at nurturing enterprise

• Helps cement relationships between the corporate and entrepreneurial sectors by enabling new ways of partnering, fostering knowledge sharing between the sectors, and enhancing companies’ access to markets.

130 PwC How to act on this report Corporations If you’re a senior executive at a corporation, you may The central purpose of this report find chapters 2, 3, and 4 of particular interest. These is to drive action. We hope that the and other chapters can help you spark dialogue on frameworks, analyses, and ideas how your company can spur its own growth, craft Winning Leap solutions that benefit India overall, and laid out in this document will help set the stage for elevating your company to world-class catalyse action among corporate status. leaders, entrepreneurs, investors, and government officials aimed at contributing to India’s Winning Leap. Entrepreneurs If you’re an entrepreneur, you may want to pay especially close attention to chapter 4 as well as chapters 2 and 3. We recommend using these and other chapters to brainstorm ideas for partnering with large, established corporations (for example, by establishing enterprise institutes); for scaling your company; and for stepping up creation of new jobs.

Investors If you are an investor, chapters 2 and 6 may be of particular interest, as they assess sector opportunities, the growth options facing India, and the size of the investment opportunity.

Government If you’re a government leader, chapters 2, 5, and 6 may be of particular interest to you. These and other chapters can help you and your colleagues explore ideas for improving the ease of doing business in India (perhaps even establishing a council focused on this goal) and collaborating with businesses to identify short- and medium-term actions that the government could take to elevate India’s ranking in the Ease of Doing Business index.

Walk hand-in-hand with A good first step would be the to the wider public. The Winning the government creation of a special group in the Leap vision, the notion of building India’s government can play an Enterprise Institute that focuses private-sector capabilities to realise important role in convening sector on gathering outside-in advice for this vision, the rising role of the leaders, rewarding problem solvers, government and industry bodies on entrepreneurial sector, the impor- and promoting a culture of risk and ways to improve the ease of doing tance of improving the ease of doing entrepreneurship. However, we business. This group could also business—all of these matters call believe that the government’s pri- serve as an education and training for wider public recognition and mary call to action is to improve the module for private and public awareness. Spreading the word will ease of doing business. We don’t see stakeholders on the relevance of help the private and public sectors this as a one-way street, whereby best practices and approaches tap into the power of civil soci- the government simply hands down to improving India’s rankings on ety. Sector leaders can also spark new edicts. Rather, it will best take important indexes. international dialogue, making the form of a dialogue between the interested stakeholders outside of government and the private sector Engage civil society India aware of the country’s unprec- to deepen everyone’s understanding Private sector players and the edented nation-building activity of how best to improve the ease of government can plant additional and inviting them to take part. doing business in India, in the short seeds for change by disseminating and long terms. the findings laid out in this report

Future of India 131 A call to arms The private sector, for its part, will The global community has viewed need to take a leadership role that’s India through the twin lenses far bigger than the role it fills today. of admiration and scepticism— To date, this sector has operated in admiring this vast nation for its India with admirable dedication, democratic values and cultural efficiency, and poise. But sector heritage while expressing concerns players will have to build new capa- about pervasive corruption, fickle bilities to take the lead in India’s business rules, and slow pace Winning Leap. They will have to of change. lead with integrity and with a sense of purpose that energises people, Today, India is poised to transform develop bold ambitions, and achieve itself—and improve the lives of those ambitions in a sustainable and its 1.25bn citizens—with unprec- inclusive manner. edented speed. All told, its Winning Leap effort constitutes the larg- Indeed, we think of the govern- est such effort attempted by any ment’s role as building the arena country. India brings to the table for the Winning Leap, defining the a rare set of strengths: a stable rules of the game, and construct- government that supports private ing the infrastructure (physical and effort, a demographic dividend, a digital) needed to create the bright capable private sector, and restless future awaiting India. The govern- entrepreneurs. Armed with these ment will create the environment advantages, India must seize this for this achievement; the private unique moment in its history. sector will shoulder responsibility for generating and executing Imagine India 20 years from Winning Leap solutions within that now: per capita GDP is nearly environment. US$7,000—about U$20,000 in purchasing power parity (PPP) terms. India’s Winning Leap could serve as All citizens have access to quality an example for much of the devel- healthcare and education as well as oping world. Many countries with reliable electricity. People in every emerging economies are seeking small village and town have just as inspiration and a democratic model much access to the Internet as their for such accelerated development. If urban counterparts do. Corporate India builds its economy to US$10tr India boasts as many as 50 global in 2034, its achievement will have brands (up from the five it has enormous significance not only for today), 20 Nobel Laureates (just two India but also for other ambitious today), and 60 Olympic medal win- economies. The coming century ners (six today). Ordinary citizens’ could be India’s to lead. assumptions that their lives are about merely subsisting have given Clearly, the likelihood of any vision way to expectations of prosperity, becoming realised hinges tightly on dignity, and freedom to use their the efforts and commitment of all skills. stakeholders. No one can guarantee that India’s Winning Leap vision will To make this vision real, India will come true in the future. However, have to marshal all of its people and we can say with great confidence channel all of its resources toward that the vision itself can play a vital a common vision and purpose. It role in bringing different stakehold- will have to liberate entrepreneurs ers together in new ways that lead to create quality jobs at a pace never to fresh solutions no one has seen seen before in India’s history. It will before. As each of these stakehold- have to help citizens find and excel ers—corporations, entrepreneurial in those jobs. It will have to ensure companies, government, citizens— the rule of law and safeguard India’s step forward to take their part in democratic values. the Winning Leap, each will help to light the path ahead.

132 PwC Growth of 7% to 8% is a given in India provided we don’t do something drastically wrong. If we start executing and implementing, we can achieve growth of another 2%.

Raghuram Rajan Reserve Bank of India

The Future of India 133 Endnotes

Chapter 1 Chapter 2 1 United Nations 15 Oxford Economics 1 World Bank data Development Programme 16 International Monetary Fund, 2 World Bank data 2 United Nations 2013. Available at http://blog- 3 World Bank data Development Programme imfdirect.imf.org/2013/12/02/ 4 Bhan M.K., 2012. How to Usher 3 United Nations china-fastest-growing-consumer- in Vaccinnovation in India, The Development Programme market-in-the-world/. Economic Times. Available at 4 TRAI data, 2014. Available at: 17 Oxford Economics http://articles.economictimes. http://trai.gov.in/WriteReadData/ 18 United Nations indiatimes.com/2012-01-30/ WhatsNew/Documents/PR-TSD- Development Programme news/31005906_1_indian-vaccine- May,%2014.pdf. rotavirus-vaccine-vaccine-manufac- 19 United Nations Department of turers. 5 IAMAI press release, 2014. Economic and Social Affairs, World Available at http://www.iamai.in/ Population Prospects: The 2012 5 2014. Indian Companies PRelease_detail.aspx?nid=3222&N Revision. Available at http://esa. Among Emerging World’s Month=11&NYear=2013. un.org/unpd/wpp/index.htm. Vaccine Heroes: Bill Gates, The Economic Tiimes. Available at 6 IAMAI, India Internet Report, 20 Brand Finance, 2014, Global 500 http://articles.economictimes. 2013. Available at http://www. 2014: The World’s Most Valuable indiatimes.com/2014-01-20/ imrbint.com/downloads/ Brands.. Available at http://brandi- news/46374768_1_biological-e-bill- Report-BB55685%20IAMAI%20 rectory.com/league_tables/table/ gates-bharat-biotech. ICUBE_2013-Urban+Rural-C1.pdf. global-500-2014. 6 World Bank data 7 Avendis, 2014, India’s Mobile 21 Nobelprize.org. Available at Internet: The Revolution Has http://www.nobelprize.org/ 7 IDFC Foundation, 2013. India Begun. Available at: http:// nobel_prizes/country-birth-map/ Infrastructure Report 2012: Private www.avendus.com/Files/ map.php. Sector in Education. Available at Fund%20Performance%20PDF/ http://www.idfc.com/pdf/report/ Avendus_Report-India’s_Mobile_ 22 BBC Sport. Available at http:// iir-2012.pdf. Internet-2013.pdf. www.bbc.com/sport/olympics/2012/medals/countries. 8 PwC, 2014. 17th Annual Global 8 India Census data CEO Survey: Fit for the Future? 23 TRAI, 2014, Telecom Sector in Available at http://www.pwc.in/ 9 World Bank data India: A Decadal Profile. Available assets/pdfs/17th-annual-global- 10 Chowdhary, M., 2013, How at http://www.trai.gov.in/ ceo-survey/17th-annual-global-ceo- much has social media penetrated WriteReadData/Publication/Docu survey-fit-for-the-future.pdf. in India?, IndiaSocial. Available at ment/201304121052403536675NC 9 World Bank data http://www.indiasocial.in/social- AER--Report08june12.pdf. media-penetration-india/. 24 TRAI press release, 2014. 10 World Bank data 11 PwC, 2012, Profitable growth Available at http://trai.gov.in/ 11 2010. The Pros and Cons of strategies for the global emerging WriteReadData/WhatsNew/ Genetically Modified Seeds, The middle. Available athttp://www. Documents/PR-TSD-May,%2014. Wall Street Journal. Available at pwc.in/publications/global-emerg- pdf. http://online.wsj.com/news/arti- ing-middle/index.jhtml. 25 NASSCOM, 2014, India IT-BPM cles/SB126862629333762259. 12 United Nations Development Overview. Available at http://www. 12 World Bank data Programme, Human nasscom.in/indian-itbpo-industry 13 The World Bank, 2012. Development Reports India: Issues and Priorities for 13 Oxford Economics Agriculture. Available at http:// www.worldbank.org/en/news/ 14 Oxford Economics feature/2012/05/17/india-agriculture-issues-priorities.

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138 PwC Chapter 5 Chapter 6 1 The World Bank and the 1 Global Economic Model, 13 India Healthcare – Inspiring International Finance Corporation, Oxford Economics possibilities , challenging journey 2013. Doing Business 2014. 2 Global Economic Model, Available athttp://www.doing- 14 CEA & Working Group report of Oxford Economics business.org/~/media/GIAWB/ 11th Plan. Doing%20Business/Documents/ 3 Global Economic Model, 15 National Geographic - India’s Annual-reports/English/DB14-Full- Oxford Economics Push for Renewable Energy: Is It Report.pdf . 4 Global Economic Model, Enough? Available at: http://news. 2 Fatas, Antonio, and Mihov, Ilian, Oxford Economics nationalgeographic.com/news/ 2009. The 4 I’s of Economic Growth, energy/2014/09/140919-india- 5 Global Economic Model, INSEAD. Available at http:// modi-renewable-energy-science- Oxford Economics executive-education.insead.edu/ world-wind-solar/ ressources_edp/library/ckfinder/ 6 The Earth Security Index 2014. userfiles/files/INSEAD-Mihov-Fatas- Available at http://earthsecurity. The%20Four%20I’s%20of%20 org/wp-content/uploads/2014/06/ economic%20growth.pdf. EarthSecurityIndex.pdf 7 Mashru, Ram, 2014. India’s Worsening Water Crisis, The Diplomat. Available at http:// thediplomat.com/2014/04/indias- worsening-water-crisis/. 8 US Energy Information Administration, 2014. India Energy Overview. Available at http://www. eia.gov/countries/cab.cfm?fips=in. 9 2014. How a Further Spike in Crude Oil Price Would Hit India’s GDP, The Economic Times. Available at http://articles.economictimes. indiatimes.com/2014-06-23/ news/50798697_1_crude-prices-oil- prices-second-largest-oil-exporter. 10 Government of India, 2013. Key Indicators of Employment and Unemployment in India, 2011-12. Available at http://pib.nic.in/news- ite/erelease.aspx?relid=96641. 11 National Conference on “Climate Resilient Coastal Cities,” TERI. Available at http://www.teriin.org/ index.php?option=com_events&tas k=details&sid=722&Itemid=110. 12 Krahmer, Holger, 2014. India’s Lawless War on Intellectual Property, Wall Street Journal. Available at http://online.wsj.com/ articles/SB10001424052702304679 404579456672440016300.

Future of India 139 Appendix I: List of interviews

Ajay Piramal Chetna Sinha Chairman President Piramal Group Mann Deshi Foundation

Ajoy Misra Chris King CEO First Secretary Tata Global Beverages Group Australian High Commission

Amit Chandra D Shivakumar Managing Director Chairman and CEO Bain Capital PepsiCo India

Ankit Agarwal Gopal Jain Head - Telecom Products Managing Partner Sterlite Technologies Ltd. Gaja Capital

Dev Bhattacharya Harpal Singh Group Executive President - Corporate Mentor and Chairman Emeritus Strategy and Business Development Fortis Healthcare Ltd. Aditya Birla Group Harsh Mariwala Dr. R A Mashelkar Chairman Former Director General Marico Limited Council of Scientific and Industrial Research Ipsita Dasgupta Dr. J J Irani Chief Marketing Officer Director GE South Asia and Greater China Tata Sons Khurshed Thanawalla Dr. R D Ravindran Country Representative Chairman Oerlikon India Aravind Eye Care System Kishore Biyani Jaideep Prabhu Group CEO Director Future Group Centre for India and Global Business, Judge Business School Karthik Ramanna Associate Professor of Business Administration K V Kamath Harvard Business School Non-Executive Chairman ICICI Bank Keki Dadiseth Former Chairman Bhaskar Pramanik Hindustan Unilever Limited Chairman Microsoft Corporation (India)

140 PwC Manish Sabharwal Dr. Raghuram Rajan Co-founder and Chairman Governor TeamLease Reserve Bank of India

Naina Lal Kidwai Rajan Anandan Chairman , India Managing Director Director, HSBC Asia Pacific Google India

Porus Munshi R. Mukundan Founder Managing Director Making Breakthroughs Happen Tata Chemicals Ltd.

Pranav Roach Ricardo Hausmann President Director Hughes Network Systems India Center for International Development, Kennedy School of Government Dr. Rajiv B Lall Executive Chairman Ronnie Screwvala IDFC Former CEO UTV Group Rajiv Verma CEO S D Shibulal HT Media Co-founder Infosys Raju Shete Promoter and Chairman S P Kothari Planet Group Deputy Dean Sloan School of Management Rakesh Sharma President - International Business Sandhya Vasudevan Bajaj Auto Managing Director and India Head DBOI Global Services, Deutsche Bank Group Lakshmi Iyer Associate Professor of Business Administration Sanjay Kirloskar Harvard Business School Chairman and Managing Director Kirloskar Brothers Limited Malvinder Mohan Singh Executive Chairman Sanjay Purohit Fortis Healthcare Ltd. Managing Director and CEO EdgeVerve Systems Limited (Infosys Group) R Gopalakrishnan Director Tara Singh Vachani Tata Sons CEO Antara Senior Living R S Pawar Co-Founder and Chairman NIIT Group

Future of India 141 Tarun Khanna Siddhartha Lal Professor Managing Director and CEO Harvard Business School Eicher Motors Limited

Veer Singh Banmali Agrawala Founder President and CEO Vana Retreats GE South Asia

Vijay Mahajan Sudhakar Ram Founder and Chairman Managing Director and Group CEO BASIX Group Mastek

Sanjeev Bhikchandani Dr. Raman Ramachandran Founder and Executive Vice-Chairman Chairman and Managing Director Info Edge (India) Ltd. BASF India Ltd.

Shantanu Ghosh Dr. Anand Agarwal Senior VP & Business Leader - CFO Services and CEO Consulting Sterlite Technologies Ltd. Genpact Sunil Mathur Shikha Sharma Managing Director and CEO Managing Director and CEO Siemens Ltd. Axis Bank Sanjay K Singh Shobhana Bhartia Divisional Chief Executive Chairperson Paperboards and Specialty Papers Division HT Media Ltd. ITC

Vikrampati Singhania Nandan Nilekani Managing Director Co-founder Fenner India Ltd., JK Group Infosys

Vineet Rai Anurag Thakur Founder and Chairman Member of Parliament Intellecap 16th Lok Sabha

Vipin Sondhi Sachin Pilot Managing Director and CEO President JCB India Rajasthan Pradesh Congress Committee

Vivek Chaand Sehgal Chairman Motherson Sumi Systems Limited

142 PwC Appendix II: PwC Contributors

Contributing Partners, Directors Abhishek P Singh Manish B Agarwal Adam Gutstein Manish R Sharma Ajay Kakra Manoj Kashyap Akash Gupt Manpreet Singh Ahuja Alastair Rimmer Michael J Surface Amit Bhagat Mohammad Chowdhury Anish P Amin Nadim Yacteen Bimal Tanna Nikhil Bhatia David Jansen Nilesh Narwekar David Wijeratne Padmaja Alaganandan Deepankar Sanwalka Patrick Figgis Dhiraj Mathur Phil G O’Prey Dipankar Chakrabarti Rachna Nath Dushyant Singh Rahul Garg Gautam Mehra Rajesh Balaraman Hazem Galal Rana Mehta Indraneel R Chaudhury Richard Abadie Jai Sinha Robin Roy Jaivir Singh Rohit Bhasin John Jullens Sambitosh Mohapatra John Sviokla Satyavati Berera Kameswara Rao Shinjini Kumar Kathryn Coombs Shyamal Mukherjee Ken Favaro Soumen Mukerji Ketan Dalal Sudhir Singh Krishnakumar Sankaranarayanan Sujay Shetty Linda Stevens Suzanne Snowden Maheshwar Singh Tapan Ray Malcolm Preston Vivek Mehra

Future of India 143 Appendix III: Research Methodology

The Winning Leap research involved the national growth ambition, align with sector-driven bottom-up detailed macro-economic and applicability of global exemplars to analysis done by PwC and looked at sector-level analysis to understand the Indian market, key focus areas additional aspects such as economic the need, applicability and possible for private sector players and the growth projections, labour force implications of non-linear solutions strategic bets that each sector could participation, overall investment to the Indian economy. The research take going forward. requirements etc. methodology included five core components to build and validate III. Investment Modelling: V. Secondary Research various growth hypotheses analysed Bottom-up approach Lastly, the team conducted detailed as part of the study. Investment models were created secondary research for each section for key sectors to quantitatively test of the report, keeping a major focus I. Industry Interviews the feasibility of the Winning Leap on the ten vectors. The team relied The team conducted more than 80 approach and estimate the contri- on databases from recognised agen- interviews with distinguished lead- bution of non-linear solutions in cies such as the World Bank and ers from the corporate and social the $10tr national ambition. These the UN for country-level statistics. sector, eminent academicians and models asses the capital invest- Government websites and national noted policy-makers in India. These ments required to meet the vector databases were consulted to deep- interviews were focussed on under- benchmarks by 2034; through dive on local trends and understand standing the viewpoint of national both traditional and Winning broad policy directions in each leaders and thought-makers on Leap solutions. They also provide sector. Sector-level analysis also aspects such as opportunities and a breakdown of different compo- included detailed review of research challenges before India, feasibility nents including Fierce-Catch Up, papers published by industry think- of non-linear growth in the next Significant Leap and Leapfrog solu- tanks such as the CGAPI or the two decades, role of stakeholders tions in creating the desired impact. Broadband Commission,II etc. The in creating an ecosystem for growth team also referred to various studies and most importantly, the capabil- IV. Scenario Modelling: published previously by PwC such ity gaps to be filled to enable the Top-down approach as the ‘Annual Global CEO Survey’ private sector to drive this change. PwC collaborated with Oxford or ‘Profitable Growth Strategies for Economics to plot the macro- the Global Emerging Middle’ among II. Discussions with economic contours of the Indian many others. PwC experts economy across the period span- I Consultative Group to Assist the Poor (CGAP) is a Besides external validation, the ning 2014 to 2034. A scenario based global partnership of 34 organisations working for the financial inclusion agenda worldwide. The group project team also worked in deep approach was adopted to compare focuses on research and engagement with financial coordination with subject-matter India’s current growth trajectory service providers, policy-makers and funders to enable solutions at scale experts within PwC, both from (or baseline scenario) with options II The Broadband Commission formed jointly by India and its global network firms. arising from possible interventions UNESCO and the International Telecommunication Union aims to propagate the importance of broadband Multiple workshops were con- impacting human capital, physical on the international policy agenda and defines practical ducted with these internal experts capital and the innovation potential ways in which countries can achieve greater broadband connectivity in cooperation with the to understand sector-level chal- within the country. The three alter- private sector lenges and their implications on native scenarios were designed to

144 PwC For more information

Steering Committee Project Lead Partner

Deepak Kapoor Shashank Tripathi Chairman and Territory Senior Partner Strategy Consulting Leader PwC India PwC India [email protected] Juan Pujadas +91 981 96 78900 Vice Chairman-Global Advisory Services PwC International Limited Core Team

Blair Sheppard Arup Mazumdar Global Strategy and Leadership Development Principal Consultant, Strategy Consulting Leader PwC India PwC International Limited [email protected] +91 993 05 88938 Bharti Gupta Ramola Markets and Industries Leader Suman Jagdev PwC India Associate Director, Emerging Market CoE Lead PwC India Neil Wilson [email protected] Chief Operating Officer +91 982 00 06396 PwC India William MacMillan Shashank Tripathi Manager Strategy Consulting Leader PwC Advisory LLC PwC India [email protected] +1 267 761 8463

Gagan Oberoi Special Thanks to Aditi Kedia Swati Prasad Raunak Bavishi Sarah Hunter Mayank Sankar Nayak John Kerr Katyani Gupta Lauren Keller Johnson Catherine Cuddihee On Media Enquiries

Nandini Chatterjee Design Team [email protected] +91 981 05 08447 Odgis + Company Nidhi Jain Rahul Virkar Pallavi Dhingra Mamata Borthakur About PwC

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