India's New Opportunity - 2020

All India Management Association  Excellence in Management

INDIA’S NEW OPPORTUNITY – 2020 – 40 Million Million N ew Jo bs – $200 Billion Annual Revenue

R EP O R T O F T H E

HIGH LEVEL STRATEGIC GROUP

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CONSULTING PARTNER

IMPLEMENTATION IMPLEMENTA TION PARTNER

T H E BO S T O N C ONSULTING G R O U P Confederation of Indian Industry

Co pyright © 2003 by All All India Management Ass Association, T he Bos Boston ton Co ns nsulting ulting G roup All rights reserved. Published February 2003. All India Managemen t Ass Association “Management House” 14, Institutional Area Lodhi Lod hi R oad New Delhi 110 003, India Phone: 91 11 2461 2461 7354 7354 Fax: 91 11 246 2 66 89 The Boston Consulting Group 55/ 56 Free Press Press House 215 Free Press Journal Marg Nariman Point Mumbai 400 021, India Phone: 91 22 2283 2283 7451 7451 Fax: 91 22 228 8 27 16 3rd Floor, DLF Centre Sansad Marg New Delhi 110 001, India Phone: 91 11 2335 2335 8912/ 8912/ 2335 9521 9521// 2335 9574 Fax: 91 11 233 5 89 15 Confederation of Indian Industry 23, Institutional Area Lodhi Lod hi R oad New Delhi 110 003, India Phon e: 91 11 2462 9994-7, 9994-7, 2462 6164/ 6164/ 2462 5407 5407 Fax: 91 11 11 24 246 2 61 49 49/ 2463 31 3168 The thoughts and analyses contained in this report are based on data and assumptions derived from exter nal sources, sources, and are presente presente d for inform ational pur poses only only.. T hou gh the aut ho rs (All (All India Management Association and The Boston Consulting Group) have used reasonable efforts to compile and analyse the best sources reasonably available to them at the time of writing this report, the authors have not independently verified the completeness or accuracy of the data and assumptions, and they do not make any any representatio representatio n regarding the same. same. Ch anges in the u nderlying data or operating asssump tion s will clearly as clearly impact the analyses analyses and conclusions. T herefore, the in form ation co ntained in this report should not be relied upon without independent investigation and analysis, and the authors will not be responsible for any liabilities incurred by any third party as a result of reliance upon such information. ivatt e Limited Designed Desig ned and produced by PMDL Design Pr iva

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INDIA’S NEW OPPORTUNITY – 2020 - 40 Million Million N ew Jo Jo bs - $200 Billion Annual Revenue

R EP O R T O F T H E

HIGH LEVEL STRATEGIC GROUP

I N D I A ’ S N EW O P PO PO R T U N I T Y

–  2020

Contents PREFACE

1

E X EC E C U T IV I V E S U MM M M AR A RY

3

W h y i s t h i s r e p o r t d i ffe re n t ? INTRODUCTION

5 7

T H E G R O W T H I M P ER E R AT A T IV IV E

11

T H E O P P O RT R T U N IT IT Y

13

T H E U N C ER E R T A IN IN T Y

21

T H E A G E N D A F O R A C T IO IO N

30

M A K I N G I T H AP AP P E N

34

M ar k e t i n g I n d i a

34

E d u c at i n g an d Tr ai n i n g t h e I n d i an Wo r k fo r c e

36

C o n n e ct in g I n d ia

40

Se c t o r - Sp e c i fi c Ac t i o n s

42

CONCLUSION

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Preface In an increasingly increasingly inter- depen dent wor ld, al alll countr ies will vigorousl vigorously y pursue policies polici es to optimis optimisee comparativ comparativee factor factor endowmen ts ts.. Th e rapid technological technological changes,, while making transaction changes transaction s more seamles seamlesss, will reinforce reinforce the p roces rocesss of  global gl obal integration. integration. It has been been said said that the battl battles es of this century will be fought fought and won on t he “power of ideas. ideas.” Societies will increas increasingly ingly become kn owledgebased and promote knowledge-based industries. India has a distinct comparative factor advantage as a vast reservoir of skilled manpower. T he demograph ic differ differentials entials rev reveal eal that over the next 20- 30 years years,, India has distinct advantages in a population profile concentrated in the younger age group, where many new oppor tun ities can be full fully y optimised. optimised. What are the policies that would enable India to optimise these emerging opportunities and what should we as a nation do in concert so that we turn out to be winners and not losers? With the o bjectiv bjectivee of ans answerin werin g these question question s, the All All India Management Association (AIMA) had set up a High Level Strategic Group comprising leaders from industry industry,, ac academi ademia, a, and the gov governmen ernmen t. Th e results results of the deliberati deliberations ons of  the group, inv involvi olving ng in- depth int era eraction ction w ith wide segments segments of society society and and decision decis ion makers makers,, ar aree contained in in this report. A tas task force force comprising comprising AIMA AIMA,, the Co nfede nfederation ration of Indian Industry, Industry, and Th e Boston Boston Co ns nsulting ulting Group h as been constituted cons tituted to implement the Ac Action tion Program Program that has emerged. I have have no dou bt that all all the stak stakeholders eholders,, including the governmen governmen t, the corpo rate sector, and academi ac ademia, a, will contr ibute in th e implementation implementation of the recommendations contained in the report. Th is will enabl enablee India to enhance its growth, secure additional additional employment, emplo yment, and maximis maximisee the emerging opportu nities nities..

(N . K. Si ng ng h ) Member Planning Commission Ch ai airman, rman, H igh Lev Level el Strategic Strategic Group

PREFAC PRE FAC E

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Executive Summary T he steam steam engine (and its success uccessor, or, the int ern al combu stion en gine) heralded the industrial indus trial rev revolution olution th at led led to econ omic growth growth in the Wes est. t. Th es esee engines required require d fuel - coal and and petroleum. As the indu striali trialissed count ries exhaus exhausted ted th eir own sources of supply supply they tur ned increasingly increasingly to o ther sources, which res resulted ulted in the econ omic growth of the supplying supplying countr ies ies,, such as the o il producing producing countries of the Middle Middle Eas East. This pattern pattern is unfoldi unfolding ng agai again. n. The gro growth wth paradigm of Western economies requires another kind of fuel – knowledge workers and skil skilled led profes professsional ionalss. For example, example, U.S U.S.. growth rates of the 1990s are are primarily attributed to productiv productivity ity increas increases es enabl enabled ed by a highly highly skil skilled led workforce workforce.. In th e next two decades developed countries will face a shortfall of fuel (skilled professionals) and once again will have to look towards developing countries to make up the shortfall. For India, India, growth is an imperativ imperative. e. To be cou nted as a major major economic powerhouse powerhouse by the en d of this centur y’ y’ss fi first rst quarter, India needs to accelerate accelerate its econom ic growth beyond beyond the existing existing rates of 5-6% per annum. Th en on ly can can its citiz citizens ens,, more t han a quarter of who m (~28%) (~28%) live live below below th e poverty line today, today, af afford ford better lifes lifestyle tyless. In addition, at current growth rates rates India is is projec projected ted to have have a significant unemployed population (estimates range between 19 and 37 million unemployed unemploy ed by 2012) 2012),, the larges largestt share share of which will will be educated educated youth youth . Th e unemployment and poverty resulting from inadequate growth will retard other effforts to place ef place India amongs amongstt the to p global global economic powers powers.. Th eref erefore, ore, the acceleration of economic growth and the employment of skilled youth in the next two decades are key concerns for India Inc. Perhaps,, we hav Perhaps have for too long looked to o thers for for models of growth. growth. We have have marvelled at the tigers and the dragon and wondered what we could do to copy their succes successs. But that is is denyi denying ng us our un ique plac placee in the world. world. Pe Perhaps rhaps if we start with our own strengths trengths,, we can can find an opport unity in o ur u niquely larg largee and skilled workforce – an opportunity that distinguishes our model of growth and that is opening up for India as a result of global developments this report analyses. W hile India faces faces an unemp loyment crisis, crisis, ironicall ironically y, many count ries are are projected to face workforce shortages in the same period due to lower birth rates and an increasse in the proport ion of the elderly increa elderly in their population. population. Wh ile skill killed ed workforce requirement s are increas increasing ing in line with econ omic growth , ava vaila ilability bility is no t keeping pace, pace, as a res result ult of fewer fewer people enter ing the workforce and the trend towards early retirement retirement . Select profess professions are alrea already dy witn es esssing a sho sho rtfall (IT (IT services ervices,, medica medical, l, educati education). on). Th e workforce workforce shortages shortages (mos (mostly tly in skil skilled led categories categories))

EX ECU TI VE SUMM SUMM AR ARY Y

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can slow down economic growth in these countries and have other adverse socioecono mic implication implication s. Adjus Adjusting ting for for initiatives initiatives taken by gov govern ern ment s to manage this crisis crisis,, the H igh Level Level Strategic Strategic Grou p (H LSG) estimates estimates a net workforce shortfall of 32-39 million by 2020 in the developed countries of today. This challenge faced by some countries presents a great opportunity for some developing dev eloping count count ries ries,, such as India. India can can target this shor tag tagee by provi providing ding remote services to these countries and also by importing customers and servicing their needs in India. India. Th e contribution o f remote services services al alone, one, which is the main focus of this repor t, will be $133$133- 315 billion billion o f additional revenue revenue flowing into th e country and the addition of 10-24 million jobs (direct and indirect) by 2020. Further, importing customers into into India (medica (medicall tour is ism, m, educati educational onal service servicess, leisure tourism) could add $6-50 billion in revenue and create 10-48 million jobs (direct (dir ect and indirect) by 2020. 2020. HLS HLSG G estimates estimates that throu gh remote services services and the importation of customers India could enhance year-to-year GDP growth by up to 1.5% ov over er cur rent growth rates, rates, most of which (~80-85%) (~80-85%) would be th rough remot e services ervices.. India is positioned well against these opportunities given its large pool of qualified manpower, track record in service service delivery delivery in sectors like IT, and lower lower costs (specifi (s pecifical cally ly in areas areas such as medical treatmen treatmen t and e ducation services ervices). ). H owev owever, er, in order to conv convert ert th es esee oppor tunities into into ac actual tual rev revenues enues,, India Inc. Inc. will hav havee to take several initiatives. HLSG has identified six thrust areas for action to boost demand for India’s services: t t t t t t

Strengthen India Inc. ima image/ ge/ brand Focus marketing on select countries with select services Build customer credibility Promo te acceptability acceptability of the ‘off ‘offssho re’ concep t Improve service experience for customers Invest in promoting trials

HLSG has also identified six thrust areas for action to boost supply of India’s services: t t t t t t

4

Develop domain expertise in specific areas R eform education and training sector to increas increasee base base of skilled skilled profess professionals Strengthen connectivity inf infras rastructu tructu re (telecom, (telecom, IT IT,, ai airpor rpor ts ts)) Promote public-private partnerships Form int eres erestt groups aroun aroun d oppo rtun ities Align legal and regulatory structure

Why is this report different? O ver the last last few few years years,, many repor repor ts hav havee been wr itten o n how to lea lead d India onto the path of accel accelerated erated deve development. lopment. Wh il ilee most reports correctly identif identify y oppo rtu nities and build a cohe rent roadmap, roadmap, they often do no t result result in effecti effective ve implementation imple mentation and hence opport unities ar aree not realiz realized. ed. We would like like our report to stimulate stimulate actions towards the goal. T herefore, we have have anal analys ysed ed why report s fa fail il to en gag gagee the implemen ters, and we have have used this un derstanding to shape shape our report. We have have found th at reports that that fail fail to have have much impact fall fall into t wo categories: 1. T he first categor y involves involves a lot lot o f analys analysis is and lays lays down det ailed sets sets of  instructions for those who have to implement whatever ideas are in the report. Th e focus focus of the proces processs is to first complete the report . O n c e completed, compl eted, such reports of often ten end up on th e shelf shelf.. The big bigge gesst shortcoming shortcoming in such cases is that the people who have to implement the instructions do not fully fully comprehend what needs to be do ne and/ or do not tak takee ownership ownership of  the t as ask, k, as they are not inv involved olved in its devel developm opm ent 2. T he second second categor y starts starts by analys analysing ing the situation situation and out lining broad themes.. Howev themes However, er, the follow-u follow-u p process process is not documented well and and is la largel rgely y unstructured. Th e driving principle in in this ca casse is to provide an idea and hope that it will work . Here aga again, in, the report report hits the shel shelff and gathers gathers dust. Th is report t ak akes es a dif diffe ferent rent approach. approach. Th e approach approach adopted h ere rests rests on two simple prin ciples ciples,, which h ave been foun foun d to b e highly effecti effective ve in in situation situation s involving disparate interest groups: 1. Create an appreci appreciation ation of the oppo rtun ities that exist exist and pr ioritis ioritisee areas areas for action 2. Al Align ign processes processes and and p articipants (implement (implement ation part ners) towards towards a common goal In addition t o ident if ifying ying areas areas where action n eeds to be taken, this repor repor t provides a structured framework for key stakeholders to participate in the assimilation of  ideass and development idea development of their implementation implementation pla plans ns.. Th e report is the first first in a series of steps necess necessary to fulfil fulfilll the overal overalll goal. goal. In th e next step, step, appropriate agencies will devel develop op implemen tation plans for the cr itical area areass identified. T hese agencies may be int er- departme ntal task task forces for the key areas areas, or join t indu strygovern gov ern ment tas task k forces, forces, or bu siness organis organisations ations that pilot and implemen t projects to realize the benefits of the opportunities analysed in this report.

EX ECU TI VE SUMM SUMM ARY

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Introduction The idea of providing professional services to the developed world remotely from India is not new new.. H owe owev ver, li little ttle analy analyssis has been don e so so far on th e exact exact nature of this opport unity and the action action steps requir required ed to exploit it. Th e Al Alll India Management Association (AIMA) set up a High Level Strategic Group (HLSG) to examine exa mine these iss issues ues.. Th e H LSG compr is ised ed leaders leaders from from industry, industry, ac acade ademia mia,, and the governmen governmen t. Th e objectiv objective of the H LSG was was to: t t

t

Identify the opportunities available to Indian companies Highlight the need for policy makers to act quickly in view of the urgent  job j ob- crea creation tion require requirements ments Develop a process that creates alignment between the various stakeholders and the common goal

A key consideration for the HLSG during the development of this report was its abili abi lity ty to bring about real change. change. To th is end, the H LSG inves invested ted signif significa icant nt t ime in un derstanding the reason reason s why India, despite having having suff sufficient icient kn owledge of  what needs to be don e, often fail failss to ‘mak ‘makee it happen.’ happen.’ Th e collectiv collectivee experience of  the HLSG members suggested that the inability to make things happen faster, with alignment, al ignment, is the main reas reason on why India mis missses opport unities unities.. O n further study study,, it was felt that the lack of speed was generally a result of an implementation model that enforces enforces complia compliance nce rather rather than obtaining commitment commitment (Exhibit 1). 1). Th e power of commitment amongst stakeholders to relentlessly obtain the desired outcome cannot be undere underesstima timated. ted. Unfortunatel Unfortunately y, mos mostt appr pproac oaches hes to implement implement change ar aree designed designed to obtain complia compliance nce rather rather than commitment. As a res result, ult, the energy in in the process process peters out. To obtain commitment from from all stak takeholders eholders,, the HLSG embarked on a path that architects and guides the process of involvement and action using the report as a stimulus. T he ch osen approach was bas based ed on th e analysis analysis of several several init iatives iatives,, som e of them national in scope, scope, and some some within corporations. corporations. In almos almostt all all ca casses es,, the members reached a similar conclusion – the quality of process has a far greater impact on the outcom e than the amoun amoun t of detai detaill (recommendati (recommendations) ons) in the report. Th eref erefore, ore, the HLSG adopted an approach that entailed the structured involvement of all concerned stakeholders as opposed to those approaches adopted in the past that have not been found to be effective (Exhibit 2).

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Exhibit 1

SUCCESSFUL IMPL EMENT EMENTA ATION MODEL – MOVING FROM COMPLIANCE TO TO COMMITMENT Commitment “Wow! Where do we start? Who else do I know who can help us?”

Genuine Compliance “What a great idea! What can I do to help?”

Formal Compliance

    e     c     n     a      i      l     p     m     o      C

“It's expected – of course I'll do it”

Grudging Compliance “I wouldn't want to lose my job, now would I?”

Non-Compliance “Right. Ask me about it again next next month.” month.”

Malicious Compliance “You want compliance? Fine. I'll follow every “You every single little detail in the rule book faithfully. Let's just see where that gets you!”

Exhibit 2

DIFFERENT APPRO APPROACHES ACHES TO CONVERT IDEAS INTO ACTION

Approach

D r i v i n g pr i n c i p l e

1

Analysis

Report with action steps

"Instructions" to implementers

2

Analysis

Report with broad themes

Unstructured follow-on

3

Analysis

Report with action areas

Structured involvement of actors

"Com "C ompl plet ete e rep report ort fi firs rst" t"

In mo most st ca case ses, s, li litt ttle le happens, opportunity lost, report on shelves

"An idea and hope for the best"

In most cases, little happens, opportunity lost, report on shelves

"Managed, participative process, facilitated by reports"

Ideas are converted to action by implementers

HLSG is following the third approach

8

O ut c o m e

We would like to highlight that this report is the first step in a guided process of  developing dev eloping focus focused ed and aligned aligned actions. actions. Th e report should form the bas basis is for t he second step, which is dev developing eloping a stru stru ctured p roces rocesss to align the variou s stakeholders and and actor s. T his process process shou ld be character character is ised ed by dialogue dialogue and analys anal ysis is within and between the variou s group s, and sho sho uld lead to self-devel self-developed oped action plans. plans. T hereaf hereafter, ter, it is des desirabl irablee to have have an agency agency or process process to per iodicall iodically y review and coordinate actions because the plans and actions of the various groups in their respective areas can reinforce each other (Exhibit 3). Exhibit 3

PLANNED APPROACH – FROM “REPORT” TO IMPLEMENTATION

“REPORT”

• • • •

Opportunity Areas for action Nature of action Process for engaging actors and obtaining alignment

H LS G rol e

GUIDED PROCESS FOR ALIGNMENT AND DETAILED ACTIONS • Task forces for critical areas • Dialogue and analysis triggered by report • Integration process

IMPLEMENTATION

• All agencies concerned • Monitoring and co-ordination process

H a n d ov e r t o a p p r o p r i a t e a g e n c y

An analysis analysis of sev several eral policy-change programs under taken by the gov govern ern ment suggests three catalysts for implementation: t

t

t

Strong support from influential people who drive the agenda and clear away roadblocks roa dblocks (e (e.g. .g. PMO / FM, res respected pected burea bureaucrats ucrats)) Dynamic leadership from bureaucrats who take ownership to carry the process to conclusion Continuous external pressure on the government for action as well as advice on the way forward from industry associations and companies

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O n th e oth er hand are sev everal eral fa factor ctor s that deter success successful implementation . T hese are: t

t t

t t

t

t

Lack of alignment within government (politicians and bureaucrats) on core guiding principles for action Lack of involvement of all concerned ministries at planning stage Lack of agreement on implementation plan - leading to coordination problems across various entities Lack of continuity and accountability of key bureaucrats Lack La ck of sys systematic involvement involvement / push from comp anies and ind ustry associations Mismatch between the requisite skills for the job and allocation of  responsibility R equiremen ts for signif significant icant fun fun ding from from t he governmen t

T he results results of the deliberations of the H LS LSG, G, supplemen ted by contr ibution s fr from om many ma ny others, others, ar aree contained contained in this rep report. ort. The rep report ort describes describes:: t t

t t

Growth imperatives for India Nature and size of opportunity from remote servicing and importing customers Potential areas for action Industry-specific action steps for central and state governments and Indian companies

A tas task force force compr is ising ing AIMA AIMA,, the C onfedera onfederation tion o f Indian Indian Indu stry (CII), and Th e Boston Boston Co ns nsulting ulting Group (BCG) has been been con stituted to orches orchestrate trate the engagement of ‘India In c. c.’’ – o ff fficia icials ls fr from om central and state governm ents and business leaders – to work together and realize the opportunities for India that the H LSG has anal analys ysed. ed.

10

chapter one

The Growth Imperative The Indian economy gained fresh momentum with the liberalisation ushered in by the governmen governmen t in 1991. Th e av averag eragee GDP growth rate climbed climbed to nearly nearly 6% dur ing the 1990s, compared to a tepid 4% for the first first 40 years years since indepe nden ce. H owev owever, er, des despite pite th e gains gains made postpost- liberal liberalis isation, ation, India still still has a lon lon g way way to go. More th an a quarter of its populati population on still li live vess belo below w th e poverty poverty line. line. Its GDP per capita (non-PPP adjusted) fares poorly against other nations with comparable backgrounds (Exhibit 4). Exhibit 4

POVERTY POVER TY AND GDP PER CAPITA IN INDIA

Despite improvements, a large share of India's population still below the poverty line % population below the poverty line 40

GDP/capita far lower than other countries in the region – 2002 GDP/capita ($/person) 12,000

36

10,479

10,000 28

30

8,000 6,000

20

4,000 2,000

10

5,024 2,476

1,831

985

944

430

0

0 93-94

99-00

Thailand China India South Korea Russia Indonesia Malaysia

Source: National Sample Survey; World World Economic indicators – IMF; BCG analysis

The spurt in the years immediately following liberalisation appears to have sla lackened ckened and and GD P growth is reac reaching hing a plateau plateau at 5-6%. 5-6%. Th e current developmental problem facing India is exacerbated by the changing demographic profile prof ile of the country. country. At current current rates, rates, any anywhere where between between 19 and and 37 million million people will be unemp loy loyed ed by 2012, the largest largest chu nk o f which will be amongst the educated educated youth. youth. Theref Therefore ore,, the need for strong strong,, ac accel celera erated ted economic growth growth is now more acute than ever. The solution to accelerating India’s economic growth should keep in mind the current rea reali lities ties of the Indian economy. economy. In view of the limited inves investment tment abi abili lity ty

T H E G RO RO W T H I M PE PER AT AT I V E

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of the governme nt, low Foreign Foreign D irect Investmen Investmen t (FDI) and relativel relatively y low low level level of  expor ts compared to t he size size of the econo my my,, a solutio solutio n th at levera leverages ges the w ide ava vaila ilability bility of hu man capital, capital, rather th an the limited financial capita capital, l, is more likely to succeed (Exhibit 5). Exhibit 5

CHALLENGES AND OBJECTIVES OF GROWTH PLAN

Traditional Traditio nal options to stimulate growth may not be feasible/sustainable Pump priming • Limi Limited ted abilit ability y for further further inve investme stments nts - Indian central central and state state governments governments combined fiscal deficit ~10% of GDP (~$50 billion) in 2001-02

Economic growth should address the problem of unemployment...particularly of skilled youth # of unemployed people in India (Mn)

35 30

Foreign Direct Investment (FDI) • Indi India a attrac attracts ts a very smal smalll share share - India - $4 billion billion vs. China - ~$40 ~$40 billion Exports • On Only ly ~1 ~14% 4% of GD GDP P • Limi Limited ted succes success s in manufa manufactur ctured ed goods goods and commodities

37

40 Largest share of unemployed are youth with secondary/col secondary/college lege education

26

25 20 19

15

16

10 5

7.4

7.9

9

0 1994

1997

2000

2007E

2012E

Note: Range of unemployment estimates estimates due to differences in assumptions for growth in labour force; usual principal and subsidiary measure of unemployment is used Source: Statistical Outline of India; Report of the task force for employment opportunities (Planning Commission, July 2001); CMIE; IMF; BCG analysis

In the next chapter we describe opportunity areas that could provide solutions to India’s developmental challenge.

12

chapter two

The Opportunity Wh ile India struggle struggless with with a burgeoning population population of educated educated youth, the rest rest o f  the world, es especial pecially ly devel developed oped cou ntr ies ies,, fa faces ces a sho rtage of working- age peop le le,, caus ca used ed largel largely y by lower lower birth rates and an ageing ageing working population. population. Wh ile the requirement for skilled workers in these markets is increasing in line with econ omic growth, the avail availabil ability ity of skilled people simply simply is isn’ n’tt keeping pace. pace. In profes prof esssions like like IT services ervices,, medici medicine, ne, and education, the probl problems ems are are alrea already dy beginning to be felt. Exhibit 6 provides a snapshot of the potential labour shortages and avenues of  supply in 2020. In addition addition to developed developed coun coun tries tries,, ev even en developing developing countr ies such as C hin a and and R uss ussia ia will hav havee a workforce shor tage. Exhibit 6

POTENTIAL SURPLUS POPULA POPULATION TION IN WORKING AGE GROUP – 2020 (MN) Germany -3 U.K. -2

Czech Russia Republic Ireland 0 -6 Turkey -1 Iraq 2 China France -3 2 -10 0 Israel Pakistan -1 0 Spain -3 -2 19 3 7 Italy Iran

-17 -1 7 U.S. 5

4 Egypt

Mexico

47

-9

5

Japan

Philippines Bangladesh

India

4

Vietnam

1 Malaysia 3 Brazil

5 Indonesia

-0.5 Australia

Note: Potential surplus is calculat ed keeping the ratio of working population (age group 15-59) to total population constant Source: U.S. Census Bureau; BCG analysis

For the developed world, these shor shor tages pres present ent a hu ge challenge, challenge, as they can slow slow down economic growth. growth. And they ca can n hav have other adv advers ersee eff effects ects.. For ins instance tance,, t

Demand-supply imbalances caused by workforce shortages will increase wage rates,, reducing the competitiv rates competitivenes enesss of these these cou ntr ies

T H E O PPO RT RT U N I T Y

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Pressure on the existing social security and pension systems will increase as a significantly larger percentage of retired population has to be supported by a smaller percentage of working population

Some countries already recognize the shortage of workers as a potential problem (Exhibit 7). Exhibit 7

RECOGNITION OF WORKFORCE-SHORTAGE WORKFORCE-SHORTAGE PROBLEM

“...spurred by the retirement of more than 61 million workers in the next 30 years, workforce will be short of almost 5 million workers by 2011 and almost 36 million workers by 2031...” 2031...” - Ed Potter Potter,, President, US Employment Policy Foundation The American Workplace Report 2001: Building Americ a's Workforce for the 21st Century  “Germany would have to bring in 1.2 million immigrants annually if Europe's biggest economy and world's third largest economy hopes to avoid a crippling long-term labour shortage due to the ageing of its own work force." - German Institute of Economic Research, 2001 “By 2003 the U.K. will lack 300,000 skilled IT workers, causing a significant cost to businesses' productivity. This skills gap is forcing up the average salary of a skilled IT Manager to over £70,000 a cost that many small and medium-sized businesses str uggle to justify” - European commission research, 2000 “...ageing of society is the biggest problem facing Japan.....Japan would need 600,000 immigrants a year to make up for the shortfall in its workforce later this decade” - The Guardian, U.K., Aug 2, 2001 Source: Literature search

Several of these governments have initiated measures to manage the crisis and minimisee its impac minimis impact. t. Howev However, er, thes thesee measures measures will only reduce workforce workforce shor tag tages es,, not eli eliminate minate them. Al Alsso, the o utcome o f sev severa erall of these these measures measures is still uncertain (Exhibit 8). Even after Even after adjusting adjusting for govern govern ment actions, we estimate estimate that th e net work force shortage in developed countries will range between 32 and 39 million by 2020. Amongs mongstt such such nations nations,, the U.S., U.S., Japa pan, n, Spa pain, in, Cana Canada da,, and the U.K. U.K. are expecte expected d to face the largest shortages (Exhibit 9).

14

Exhibit 8

PROPOSED ACTIONS BY DEVELOPED COUNTRIES Several actions being talked about by developed countries...

...however, effectiveness effectiveness of these measures yet unclear

Encourage people to retire later

Study by the UN for Germany concluded that steps to manage workforce shortages through increase in retirement age would be “unrealistic and unpopular”

Increase incentives to women to join the workforce

Due to increasing affluence levels, rate of growth of women in the workforce declining. In the U.S., the growth in the last 3 years was only 0.13% p.a.

Increase rate of immigration into the country

Increase in immigration over historical rates already modelled in future population composition. Dramatic shifts in policy unlikely due to social tensions expected from such moves and tighter immigration policies due to the impact of terrorist events like 11 September 2001

Increase productivity through levels of automation

Only 13.5%(1) of all service jobs are amenable to automation. Additionall y, automation also tends to generate employment when efficiency gains are reinvested for growth

(1) “Digital Automation and the New Workforce”, Workforce”, The Progressive Policy Institute, April 2000 Source: Literatur e search; BCG analysis

Exhibit 9

WORKFORCE SHORTAGES SHORTAGES IN DEVELOPED COUNT RIES

Range of net workforce shortages in developed countries (2020) People (Mn)

Countries projected to have maximum work force shortages (2020) People (Mn)

39

40

Range of net shortfall 16

8.2-14.3

14

32

12

30

10 8

20

6

1.0-3.8

1.3-3.3

4

10

1.1-2.8 2.4-2.6

2 0

0 Minimum

Maximum

US

Japan

Spain

Canada

UK

Ranges vary based on demand for labour (driven by economic growth) and actions taken by countries to manage shortfall (automation, increase in par ticipation rates, etc.) Source: United Nations; US Census Bureau; OECD; BCG analysis

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15

I N D I A ’ S N EW O P PO PO R T U N I T Y

–  2020

Th e challeng challengee faced faced by other n ations pres presents ents an opportu nity for for India. With its large la rge popu la lation tion of educated yout yout h, India can provide provide a host of services to such countr ies ies.. Th es esee services services fa fall ll into into two broad categories categories:: 1. Profess Professional services services to t he world provided remo tely from from In dia – IT services, services, IT ena enabl bled ed servi ervices ces,, tel telemedi emedicine cine,, e-lea e-learning, rning, etc etc.. 2. C ustomers serviced serviced in India (import o f customers) – special special service tou rism (health (hea lth care, care, educati education on services services), ), lei leissure tour is ism, m, etc. Th e potential rev revenue enue from from these these two opportun ities is huge. By 2020, India Inc. can hope to generate $139-365 billion of additional revenue from these oppor tunities tunities,, pus pushing hing the G DP growth rate by an additional additional 0.6-1.5% between 2002-20 (Exhibit (Exhibit 10). Th e resultant resultant employment employment generation generation (direct (direct and indirect) can ca n be in the rang rangee of 20-72 million million by 2020 2020 (Exhibit (Exhibit 11). We will expla explain in in later chapters the uncertainties that result in a range of outcomes and also actions within our control to realize the highest possible outcomes. R emot e services services al alone one can con tr ibute $133- 315 billion billion in revenues to th e Indian economy by 2020. 2020. Th e resultant resultant employment employment creation creation (direct and and indirect) will will be in the range of 10-24 million million jobs by 2020. 2020. Starting with simple simple service servicess, such as calll centers targeted at corp orate clients, Indian providers can cal can evolve evolve to p roviding more complex services to corporations and also targeting individuals as potential customers (Exhibit 12). Th e second second opportu nity nity,, importing customers customers into into India, has the potential of  generating $6-50 billion of revenues and creating between 10 and 48 million jobs (direct (dir ect and and indirect) indirect) by by 2020. 2020. Purely from an an economic perspectiv perspective, e, the fundamentals for for this business business are stron stron gly in In dia’ dia’ss fa favour. T he cost of medical treatment and educational services in India is a fraction of the cost in developed coun tr ies (Exhibit 13). Sev everal eral Indian health care providers are al already ready tapping into this opportun ity by serving serving customers customers from from the Middle Eas East. Exhibit 13 illus illustrates trates a lis listt of medical services that can be offered offered to foreign customers. In th e area of  leisure leis ure t ou rism, India cur rently has an an in signifi ignificant cant share share o f global global tou rist arr iv ival alss. C lea learly rly,, the re is la large, rge, unt apped poten tial in th is area waiting to be harn es esssed by India Inc. T he categor ies of services services that can be provided by India Inc., by remote servicing servicing and importing customers customers into India, ar aree lis listed in Exhibit 14. India’ India’ss potential strength of human capital can give it a competitive advantage in these service areas. N ot o nly does India have have the larges largestt po ol of manpower, it also also h as the highest quality of people according to international agencies (Exhibit 15).

16

Exhibit 10

IDENTIFIED OPPO RTUNITIES – REVENUE AND IMPACT IMPACT ON GDP GRO GROWTH WTH Annual revenue of ~$139 Bn to $365 Bn (1) for India Inc. by 2020

Average additional GDP growth over existing base line growth (% y-o-y) 2.0

$ Bn (real) 400

~0.6-1.5% additional GDP (2) growth (year-on-year) between 2002–2020

365 Maximum potential(3)

350 300

1.5

1.5

250 200

1.0

159 150

Minimum potential(3)

105 100

0.6 0.5

139

50 7

52

2000

2005

83 0

0 2010

2020

Min potential

Max potential

(1) 87% from remote services, 13% revenues from special special services and leisure tourism in the optimistic scenario (2) Base line GDP growth till 2020 assumed as 5.5% (average growth between 1990-2000) (3) Range based on potential potential scenarios of world in 2020 and action taken by India to capture the opportunity – discussed discussed subsequently Note: Estimates do not include include potential shortages in China, China, Russia, Mexico Mexico and smaller developing developing countries. countries. These countries will be sources of supply Source: NASSCOM; CII; WTTC; CMIE; Literatur e search; BCG analysis

Exhibit 11

IDENTIFIED OPPO RTUNITIES – EMPLOYMENT GENERATION GENERATION

Additional employment generation for ~20 Mn to 72 Mn(1) people by 2020

Employment generation will be across skill and income levels

Number of people (Mn) 100

72

Skilled professionals

Maximum potential (2)

80 60

40 50%

40

22

20 0

50%

6

10

14

200 0

20 05

20 10

20

Minimum potential (2)

Unskilled service jobs

2 020

(1) 67% jobs from special special services and leisure tourism, 33% from from remote services in the the optimistic scenario scenario (2) Range based on potential potential scenarios of world in 2020 and action taken by India to capture the opportunity – discussed discussed subsequently Note: Estimates do not include potential shortages in China, Russia, Mexico and smaller developing countries. These countries will be sources of supply Source: NASSCOM; CMIE; WTTC; Literature search; BCG analysis

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I N D I A ’ S N EW O P PO PO R T U N I T Y

–  2020

Exhibit 12

WORLDWIDE DEMAND FOR AND ILLUST RA RATIVE TIVE LIST OF REMOTE SERVICES Demand for outsourced services will further increase due to drivers related to ageing

Illustrative list of remote services in the future

Worldwide remote services market (US $ Bn) 1,600

•

1,400 1,200 1,000

•

800

Demand due to ageing • Sho Shortag rtages es of working population • Addi Addition tional al cost cost pressure due to ageing population

Current drivers • Cost pres pressure sure • 400 • Desi Desire re to maintai maintain n • focus on core • 200 business • Skilll shortages Skil shortages in • 0 1998 19 98 20 2005 05 20 2010 10 20 2015 15 20 2020 20 specific areas •

600

•

Corporates

Back office services • E.g. Call centers

Supply chain management • E.g. Logistics management

“Do it yourself” tips • E.g. Teleplumbing

Professional advisory services • E.g. Telemedicine

Buyer of  services 

Individuals

Simple Complex Nature of services 

Note: Actual size of market could vary under different scenarios; average average numbers used here for simplicity Source: IDC; NASSCOM; U.S. Census Bureau; BCG estimates; BCG analysis

Exhibit 13

COST ADV A DVANT ANTAGE AGE AND ILLUSTRA ILL USTRATIVE TIVE LIST L IST OF MEDICAL SERVICES

Opportunity in special services tourism due to significant cost benefits, partially driven by shortages (%)

Example : Relative cost of dental treatment in India compared to the U.S.

100

Select examples of medical services being offered in India under a “medical tourism” package package Complete dental treatment Complete eye care treatment Orthopaedics and trauma

80

Cardiac care including surgery 60

Urology including endourology Neurosurgery

40

35-40% 20%

20

20-25%

Laparoscopic Laparoscopi c surgery

<3%

<5% 0

Tooth Filling

Glass Ceramic Crown

Root Canal

Dent De ntur ures es Full Full Mout Mouth h Rehabilitation

Source: The Times of India; Literature Literature search

18

Plastic and cosmetic surgery

Gastroentrology Kidney transplant

Exhibit 14

SERVICES TO BE OFFERED BY INDIA INC. Channels of Services Remote servicing

‘Importing’ the customers

Telemedicine

Individuals

Tourism • Medical tourism, spiritual tourism, adventur adventure e tourism, etc. • “Dol “Dollar” lar” shop shopping ping cent centres res - duty-free shopping zones

D-I-Y support • Tele ele-pl -plumb umbing ing • A ut ut o r ep ep ai ai rs rs • Tax advi advisory sory servi services ces • Hor Horosc oscope ope rea readin ding g • ...

Education • Higher education for develo developed ped and develop developing ing countries • Training courses courses revolving revolving around India’s India’s heritage heritage  – Ayurveda, cuisine, yoga, etc.

E-learning • Hom Home-s e-scho chooli oling ng • Adult profe professi ssional onal courses courses – re-skill re-skilling ing

Nursing houses and retirement services • A sh sh ra ra m m od od el el • Sett Settleme lements nts near near universi university ty towns towns

Personal privacy services – providing server space to individuals for record maintenance

Targets

Corporates

IT services • I T co co ns ns ul ul titi ng ng • Soft Softwar ware e applicatio application n developm development ent • Kno Knowl wledg edge e network networking ing

Tourism for corporate clients Education services for corporate clients

IT enabled services • Data analys analysis is and databas database e consultin consulting g • HR & admi admin n outsou outsourc rcing ing • Digital media and and content content developmen developmentt (E-learning (E-learning content, publishing, entertainment, etc.) • C AD AD /C /C AM AM d e si si gn gn • A ni ni ma ma titi on on • Bio Bio-in -info forma rmati tics cs • OffOff-shor shore e financi financial al service services s • Real Real-est -estate ate manageme management nt – sec security urity services services Others • R&D across across industry industry verticals – semiconductor semiconductor technology, drug research, etc. • Legal Legal/adv /advisory isory servic services es for for MNCs

Source: Intervi ews; Literatur e search; BCG workshop; BCG analysis

Exhibit 15

INDIA’S COMPETITIVE ADVANTAGE VIS-A-VIS OTHER NATIONS Quantity and quality of manpower Surplus

Projected workforce in 2020

India

Turkey Brazil

Indonesia

Malaysia

Philippines Mexico Israel Ireland

Russia China

Shortfall Low

People strength • Productivity/quality • Cost • English language skills(1)

High

(1) Over 50% of shortages expected from English-speaking English-speaking countries Note: Pakistan, Bangladesh and Vietnam have not been represented for lack of reliable data on productivity and cost of service employees Source: World Competit iveness Yearbook Yearbook 2001; Britannica Yearbook; Yearbook; Literatur e search; BCG analysis

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I N D I A ’ S N EW O P PO PO R T U N I T Y

–  2020

W hile avail availabil ability ity of a large, large, well well-- qualif qualified ied h uman res resou ou rce po ol is definitely definitely an advantage adv antage,, winn ing in th e compet itiv itivee global marketpla marketplace ce would require several several initiatives initiativ es by India Inc. In C hapters 4 and and 5, we shall shall dis discuss cuss these initiatives initiatives in greater grea ter detail. detail. But firs firstt we should identify identify the potential pitfal pitfalls ls and uncertainties that stand stand in the way of India rea realis lising ing this opportun ity ity.. An understanding understanding of the global scenario s will guide our appreciation appreciation o f the strategic strategic actions required. T he scenarios and uncertainties are discussed in the next chapter (Chapter 3).

20

chapter three

The Uncertainty Single-point forecasts are most likely to be wrong when there are many uncertainties.. We cannot predic uncertainties predictt exactly what what rev revenues enues and and emplo employment yment In dia can can generate genera te from from the opport unity described described in the previous previous chapter chapter.. But we ca can n and should understand the principal causes of the uncertainty so that we can take actions, ac tions, wherev wherever er feas feasibl ible, e, to improve improve the outcome. Th e rev revenues and employment employment in India depend on two pr incipa incipall fac factors. tors. Th e firs firstt is the size size of the global mark market et for remote services and to ur is ism. m. T he second is India’s India’s share of the global market. market. Exhibit 16 describes the sources of uncertainty underlying these two factors. Exhibit 16

UNCERTAINTY AROUND SIZE O F OPPORTUNITY AND UNCERTAINTY INDIA’S SHARE Sources of uncertainty Change in economic (GDP) growth rate impacts size of the opportunity • Workf orkforce orce requi requiremen rements ts • IT spending spending by corpor corporates/ ates/Gove Governmen rnmentt • Inter Internatio national nal tourist tourist arrivals arrivals (special (special service needs, needs, leisure tourism) Uncertainty around outcome of action taken by countries to negate impact of ageing • Incr Increased eased male, male, female female participa participation tion rates rates • Incr Increased eased retir retirement ement ages • Incr Increased eased leve levels ls of automa automation tion • Inc Increa reased sed immigr immigrati ation on Market share impacted by intensity of action taken by India Inc. in various areas such as • Build Building ing India Inc. brand • Educa Education tion infra infrastruc structure ture • End user user experie experience nce of servi services ces • Appr Appropria opriate te legal and and regulatory regulatory policy policy

Global market for remote services and tourism

India’s share of the global market

Source: BCG analysis

Let us und ersta erstand nd th e pr incipal caus causes es more carefully carefully.. T hey are: are:   D ec ecli line ne in ec economic onomic gr growth owth rate of of the t he targeted targeted count countries ries,, re result sultin ing g in t t t

Decrease in workforce requirements R educed IT spending by companies companies and and governm governm ents Slowdown in tou rist arr iv ival alss in in I ndia (for (for special service service n eeds, leis leisure ure tourism)

T H E U N C ER ERT A I N T Y

21

I N D I A ’ S N EW O P PO PO R T U N I T Y

–  2020

 R educ eductt ion in i n wor workk force shortage shortage due to suc su ccess of of acti actions ons taken t aken to neg n egate ate the t he impac im pactt of  ageing ag eing in thes t hesee co count untrie riess. S uc uch h actions actions include include t t t t

Increased participation of women in the workforce Increase in retirement age Increased levels of immigration Increased automation of services

 Lower share captured by India in the global remote servicing and tourism (medical or  leisure) busin business ess,, caused by t t t t

Poor brand perception of India Shortage of qualified workforce due to poor education system Unsatisfactory experience of customers with quality of services from India Delays and inefficiencies due to inadequate legal and regulatory infrastructure

T here are th ree additional parameters that can affect affect In dia’ dia’ss share share adversel adversely y. T hese are la labou bou r productivity, productivity, the perceived stability of governmen governmen t policies, policies, and perceive percei ved d operational ris risk. k. O n th es esee parameters parameters,, India compares compares unfa unfavoura vourabl bly y with C hina and Mexico, its clos closes estt compet itor s (Exhibit 17). Exhibit 17

INDIA’S PERFORMANCE AGAINST COMPETING NA NATIONS TIONS

Parameter

India

I n do n e s i a

Ch i n a

M ex i c o

Philippines

Russia

Availability of workforcequantity Availability of skilled workforce Cost of labour English-language skills Cost and quality of telecom infrastructure Labour productivity (PPP)(1) Perceived stability of government policies Perceived operational risk • Risk of personal harm • Risk of business disruption

Ver y fa favourable

(1) Labour productivity for India highest in IT services vis-a-vis competing nations Note: Russia and China included as they will compete in specific areas despite aggregate shortages; Israel and Ireland not included because they are not expected to be significant competitors due to lack of manpower Source: World Competiti veness Yearbook 2001; Britannic a Yearbook; BCG analysis

22

Unfavourable

Altho ugh In dia cannot Altho cannot co ntrol or influence some some of the causes causes of uncert ainty ainty,, such as the growt h rate of targeted coun tr ies ies,, it can improve improve the qu al ality ity of its services and the brand perception perception of India. We cannot predict wit h certaint y, for reas reasons explained, explained, the exact size size of the global market or India’s India’s share. H owev owever, er, we can can anticipate reas reason abl ablee ranges for these variables va riables.. T he com bination s of the possible possible ranges ranges res result ult in four altern ativ ativee scenario s (Exhibit (Exhibit 18). Exhibit 18

POTENTIAL SCENARIOS FOR OVERALL OPPORTUNITY Large global market for remote services and tourism “Paradise Lost”

“Top Guns”

3

Small share of global market captured by India

“I f Tomorrow Comes ”

1

2

“G od of S mall Thing s”

Large share of global market captured by India

Small global market for remote services and tourism

A brief description of the four scenarios follows.

T H E U N C ER ERT A I N T Y

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I N D I A ’ S N EW O P PO PO R T U N I T Y

–  2020

“Top Guns”

Scenario One  Augus  Aug ustt 15, 2020   India:Top Guns   Despite a recession at the beginning of the cent entury ury,, develo developin ping g count ountries ries have posted posted healthy economic growth rates over the last 15 years.

3

1

2

T hese gro rowt wth h rat rat es wer weree maintained maint ained despite the t he ageing of the population in the developed world  by harnessing energies of younger people in

developin develo ping g ec economies onomies.. T he economic pro prosper sperit ityy has h as also also result resulted ed in the t he globa globall tourism t ourism industry registering strong growth.   R ea ealising lising the potential potential siz e of the op oppo portunit rtunityy in 2 00 2, India put in place place init initiatives iatives to tap it despite despite the unce uncerta rtaint intyy assoc associated with the t he future. future. A s part part of of its plan, In India dia Inc. Inc.  positioned  posit ioned its it s brand brand as a cre credible dible and value-for value- for-- money service service provider provider,, foc focused used marketing marketi ng efforts on select select count ountries ries,, and worked on impro i mprovi ving ng the th e servic servicee experienc ex periencee of its it s cust customer omerss.  Enabling  E nabling legal legal and re regulatory gulatory fr f ramewo ameworks rks were were established, established, in infra frastruc structu ture re was strengthened  strengthened  and the education system was reformed.   India’ I ndia’ss prepa preparredne edness ss rea eaped ped stro strong ng re results. sults. In India dia has has posted posted ~8~8 - 1 0 % p. p. a. growth in the t he last  last  1 5 year yearss. C or orpor porations ations from from developed developed countries countries that ar aree out outso sourc urcing ing to India I ndia have developed leaner cost structures and higher service levels compared with competitors who used  local loc al higher hi gher-- cost and older resourc resources es.. T he early early suc su ccesse essess of of outsourc out sourcin ing g have furth fu rther  er  increased the growth of remote services and strengthened India’s image as the most favoured  desti des tination nation for f or outso outsourc urcing ing servic services es;; ad addit ditionally ionally,, th thee ac acti tion on steps taken by I ndia Inc I nc.. significcant signifi antly ly inc in cre rease ased d its share share of spec specialial-ser servi vicce touri tourist st arrivals arrivals.. Today Today,, develo developin ping g count ountries ries quote Indi I ndia a Inc In c. as a case case stu study dy on ‘breakt ‘breakthro hrough ugh growth growth and economic economic developme development nt.’ .’

24

“God of Small Things”

Scenario Two  Augus  Aug ustt 15, 2020  India  Indi a: G od of S ma mall ll T hing hingss  Developed countries witnessed sluggish growth in the past past 15 1 5 year yearss. T he gr growth could could have be been en   further reduced had the developed countries not  outsourced services to the developing countries. O ut utso sourc urcin ing g not only helped reduce reduce cos costt s but  also helped in overcoming the challenge of 

workk for wor forcce shortag shortagee, due to t o an an agein ageing g populat population. ion.   Indi I ndia, a, be beccause of of its i ts proac proact ive act act ion in i n fields f ields such as buil buildin ding g a strong strong brand brand imag im agee, impro im provi ving ng the th e servic servicee experienc ex periencee of its it s cust customer omerss, estab establish lishin ing g appropr appropriat iatee legal legal and  reg egulatory ulatory framewo framework, rk, and refo reforming rming the education education system, wa wass well well positioned to tap this t his oppo pporrtunity. H owe weve verr, so we werre some some other other countrie untriess like C hina, R uss ussia, ia, Mex Mexic ico o and  and  Philippin Phil ippines es.. T his led to t o fierc fierce compe competi titi tion on to obtain obtain a larg large piece piece of of a relativ relatively ely small marrket. A dd ma dditiona itionally lly,, India Inc. Inc. too tookk sig signific nificant ant effor efforts to expand the mar market: outso utsour urccing was positioned to the developed world as the best option to boost competitiveness and  inccre in rease ase ec economi onomicc gr growth owth,, and standards st andards were were set set to t o ex ex ceed cust ustomer omer ex expec pectt ati ations. ons. T hi hiss proa proaccti tive ve approa approacch has rea reaped ped benefit benefitss. T hough the th e mark mark et is not as larg large as as projec projected, ted,   India has emerged as the preferred destination for outsourcing services as well as an attraccti attra tive ve destin destination ation for medic medical al and and leisure tourism. T he initiativ init iativee has has helped helped India In dia reduc reducee unemployment rates rates to some some ex ex tent and achieve achieve 6 -7 % econo economic mic growth. A dditi dditionally onally,,   Indian companies are ready to capitalise on the opportunity when the developed world  witnesses higher economic growth.

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25

I N D I A ’ S N EW O P PO PO R T U N I T Y

–  2020

“Paradise Lost”

Scenario Three  Augus  Aug ustt 15, 2020  India: Pa Parrad adise ise Los L ost  t  T he rec recess ession ion at the t he beginni beginning ng of of the t he centu century ry did  not last long and the developed countries posted  healthy economic growth rates over the last 15   years years. T he gr growth coupled coupled wit with h an ag ageing workforce resulted in corporations and  individuals resorting to outsourcing services to

developing deve loping countries countries.. T he higher inc income omess also res esult ulted ed in the global global tourism industry i ndustry registering strong growth.  R eal alising ising the potentia potentiall siz e of of the oppo opporrtunit tunityy, C hina, R uss ussia, ia, Br Bra az il, and Indone Indonesia sia geared  thems th emselve elvess ear early ly to t o capture capture a substanti substantial al shar share. T hey seiz ed the most most luc l ucrrative oppor opportu tunit nities ies and establishe established d their t heir cr crede edent ntials ials as a reliab reliable le provider provider. H owe owever ver, In India dia could could not harne harness ss its hug hu ge manpower to tap t ap the t he attr att rac actt ive remote remote service service segme segment ntss, nor incre increase ase it itss share share of tourist  t ourist  arriv ar rivals als.. T he oppor opportuni tunity ty wa wass often discuss discussed ed,, task for forcces launc launched hed,, rep epor orts ts written, writt en, how howev ever er, nothing significant reached the stage of successful implementation. T her heree ar are ex ex ample ampless of of small org organisations and and individu in dividuals als within withi n India I ndia who, who, ag against ainst all obstac ob stacles les,, have rea reaped ped some some benefi benefitt fro f rom m this t his opportu opportuni nity ty – but th thes esee are are few and far  between. be tween. A midst rising soc social ial tensio t ensions ns cr crea eated ted by a larg large base base of of educated, educated, unemploye unemployed  d   youth,  yout h, In India dia stands on the t he sidelines watching watching other other develo developing ping countries countries move rapidly rapidly towards economic prosperity.

26

“If Tomorrow Tomorrow Comes”

Scenario Four  Augus  Aug ustt 15, 2020  India: If Tomor Tomorrrow C ome omess T he developed developed count countries ries have wit witnesse nessed d slow to medioccre gr medio growth rates rates in the t he past past 15 1 5 yea y earrs. T he market for outsourcing of services has also been small, as work work for forcce shortage shortagess have been been lower  than projected and the developing world has not  been able to create a compelling value

 propos  pro posit ition ion to t o make outsourc outsourcing the th e prefe preferr rred ed mode mode of managing managing shortage shortagess. H enc encee, only nonesse nones sent ntial ial ac acti tivit vities ies are are being being outsourc outsourced to deve developing loping countries countries.. S ome develo developing ping countries are working on strengthening their value propositions so that outsourcing could  witness higher growth rates in the future.  India is not in the consideration set for most customers since it is no longer reputed to be a value-for valuefor-- money provi provider der of remote remote ser servi vicces vi vis-às-à-vi viss other develo developin ping g count ountries ries.. Tourist  inflow into India has has kept pac pace with with gro growth in world world tourism. tourism. H ow owev ever er, India is still still  perrceive  pe eived d as a touris touristt-unfriendl unfriendlyy, dirty dirty,, and ‘diffic ‘difficult’ ult’ count untry ry to visit, and not not a tourist  tourist  destination for the elderly.   A s a result, India in 20 20 is a sha shade de wo worrse off econo onomic mically ally than in 2000 20 00 . W hile gr growth has bee been n 44 - 5 % p. p. a. a.,, un unemployment employment has rea reacched catastrophic catastrophic pro propor porti tions ons and and is the th e primary cause of soc social ial unrest. unrest. In India dia Inc. Inc. is still strugg strugglin ling g to understand understand why it has h as not been been able able to take advantage of the opportunity identified as early as 2002 and is searching for  dynamic leadership to show it the way ahead.

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27

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Depen ding on which scenario materialis materialises es,, the size size of business business and employment generation genera tion th at India Inc. ca can n expect to achieve achieve would vary vary.. Exhibi Exhibits ts 19 and and 20 outline the distribution of revenue potential and employment generation across the four scena scenarios rios.. In Exhibit Exhibit 19, total re rev venue is spli plitt into two categories categories:: i) rev revenue enue from fr om remo te services services (column 2 and 3), and ii) rev revenue enue from impor tation o f  customers cus tomers (column (column 4). R ev evenue enue from from remote services services is furth er broken broken down into two buckets. T he first first bucket (column 2) represents represents rev revenue enue th at will will accrue from from businesss oppo rtu nities bas busines based on cur rent dr iv ivers, ers, such as desire desire to focus on core businesss, need to manage costs busines costs,, and sho sho rtages in specifi specificc skill skill sets. T hese business business oppor tunities tunities,, e.g e.g., ., softwa oftware re development development and IT Enab Enabled led Services Services (ITES (ITES), ), ar aree already al ready ava vaila ilable ble and and will grow grow rapidly over time. T he first first bucket, therefore, represents repres ents the growth in thes thesee services services.. Th e second second bucket (column 3) is rev revenue that will accrue from opportunities created as a result of the shortage in the workforce, caus caused ed due to ageing ageing of the workin g popu la lation tion . A simila imilarr clas classsif ification ication has been made in Exhibit 20, which represents employment creation. Exhibit 19

DISTRIBUTION OF REVENUE BY SOURCE OF OPPORTUNITY IN 2020 ($ BN REAL) Import of customers

Remote services Due to current drivers(1)

Due to future driver: ageing(2)

Healthcare education, tourism(3)

Total

Top Guns

110

205

50

365

Paradise Lost

60

111

9

180

73

171

33

277

40

93

6

139

Scenario

God of Small Things If Tomorrow Comes

(1) Offshore-able component component of IT Services market ~$190-235 ~$190-235 Bn in 2008 (overall (overall IT services market $600-730 Bn); Bn); IT enabled enabled services $142 Bn in 2008. Long term growth rate due to current driver s (2008-2020) assumed as 3-5%; Market share range of ± 30% from market share projections made by NASSCOM (2) Net shortfall of working population population 32-39mn; India’s share share 12-22%; average average hourly hourly wage rate $12 in real terms – conservative conservative compared to current rates due to expected increase in competition (3) Worldwide international international tourist growth 4-7%; India’s India’s market share 0.4-2.0%; Revenue/T Revenue/Tourist ourist will be $1230, same at current level. Education, healthcare healthcare is less than 5% of total opportunity under impor t of customers Note: Current drivers are desire to focus on core business, business, need to manage cost, shortages in specific skill sets Source: NASSCOM; CII; WTTC; Literature search; BCG estimates; BCG analysis

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Exhibit 20

DISTRIBUTION OF DIRECT EMPLOYMENT CREATION CREATION BY SOURCE OF OPPORTUNITY IN 2020 (MN JOBS) Import of customers

Remote services

Scenario Top Guns Paradise Lost God of Small Things If Tomorrow Comes

Due to current drivers(1)

Due to future driver: ageing(2)

Healthcare education, tourism(3)

Total

3

9

24

36

1.5

4.5

7

13

2

7

21

30

1

4

5

10

Additionally, opportunity will create indirect employment equal to the direct employment generation (1) NASSCOM projec tions taken as base case; ratio of India Inc. revenues/employment creation kept constant for projections under different scenarios (2) India share of shortfall 12-22%; average billing rates $12 per hour – conservative compared to current rates due to expected increase in competition (3) Ratio of international tourists/direct employment employment creation changes changes from 1 in 2002 to 0.6 in 2020 Note: Current drivers are desire to focus on core business, business, need to manage cost, shortages in specific skill sets Source: NASSCOM; CII; WTTC; Literature search; BCG estimates and analysis

In t he n ext t wo chapter s, we will discuss discuss critical areas areas that t he cen tral and and state governmen gov ernmen ts ts,, and companies shou ld concentrate on to obtain the mos mostt benefit from from the available opportunities.

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chapter four

T he Agenda Fo F o r Actio n We have identified the critical areas that Indian planners and companies should concentrate on to a) increase India’s attractiveness to foreign customers (increase demand), and b) prepare Indian companies to effectiv effectively ely service service th is demand (expand supply to meet demand). Six areas to boost demand are: t

t

t

t

t

t

Market Mark et India by by building a credible, credible, unique po sitioning for India India Inc. Inc. brand – Build a powerful powerful and u niqu e positionin g for for t he b rand (reliable, (reliable, saf afe, e, value-for-mo va lue-for-mo ney ney,, tour is istt- friendly) riendly).. Es Establ tablis ish h credibili credibility ty by mana managing ging concerns about op erational risk (dis (disput put e with Pakis Pakistan, tan, etc.) Focus marketing effort on select countries and services – Identif Identify y th e larges la rgestt and m ost lucrative lucrative markets for services services.. Market specifi specificc services services to these countries Build credibility with customers through partnerships – Overcome the hurdle of credibility with potential customers by building partnerships with well-established service providers in those markets (leverage partners’ customer relationships to create own client base and establish brand equity) Promote acceptability of the offshore concept – Educa Educate te customers, customers, e.g e.g., ., demonstrate demonstra te to recruiting agencie agenciess and and H R departments of corpo rati rations ons the efffectiv ef ectivenes enesss of e-learning e-learning vis vis-- à-vis brick-and- mortar mo dels dels.. Work with industry associations and governments of other countries to introduce policy changes that will recognise remote services at par with brick-and-mortar models (For inbound tourism) Improve the service experience – Understand areas of dissatisfaction with service quality in the identified opportunities, e.g., accepta acceptable ble service service levels levels at inter nation al airpor ts Promote initial trials – Devise low-cost and low-risk programs and schemes that induce individuals and corporations to try out services and enable refinemen refi nemen t of business business models, e.g., off offer er free medical medical advice advice initially initially to promote telemedi telemedicine cine

Six areas to boost supply are: t

30

Develop domain expertise – Acquire new business skills that firms may not havee at present, hav present, e.g e.g.. e-learning firms firms need to know pr incipl inciples es of course coursewa ware re design, des ign, orga organis nisation ation design, design, chang changee management, management, etc., bes besides ides softwa oftware re development. dev elopment. Firms need to recog recognis nisee and address address this is isssue th ough va various rious means such as tie-u ps with o ther cor porations porations,, recruitment of releva relevant nt peo ple ple,, etc.

t

t

t

t

t

Align education and vocational training with market demand – M ap the demand for professionals today and in the future – in specific areas with specifi pecificc skill skill requirement s. Ens Ensure ure peop le with relevant relevant skill skill sets – those who can devel develop op appropriate curr iculum in programs, programs, introdu ce creativ creativee fun fun ding mechanisms – implement education p olicy olicy,, etc. (For inbound tourism) Strengthen relevant infrastructure – Take action in crit ical area areass where in fra frasstru cture is weak, e.g., airpor ts and roads. roads. Co ntinue to strengthen telec telecom om inf infras rastructure tructure Promote public-private partnership – The private sector should be invited to participate where the public sector is unable to provide the expertise or the resources, res ources, e.g., eff effectiv ectivee and effi efficient cient management o f H umayun’ umayun’ss tom b by the O beroi group. group. Th e public and and pr iv ivate ate sectors sectors need to work collabora collaborativ tively ely to seize any opportunity - jointly map out roles and execute against them Form interest groups around opportunities – Form clusters of companies arou ar ou nd specifi specificc oppo rtu nities to aggrega aggregate te iss issues and and address address them , e.g., a group of telemedicine companies can work jointly to identify their own issues in telecom, telecom, ins insurance urance,, and health health policies policies,, etc., and addres addresss thes thesee through larger organisations like CII Align regulatory polices to facilitate opportunity realisation – Identify and change current policies that act as bottlenecks in realisation of  opport unities unities,, e.g e.g., ., eas easee of obtaining vis visas for ent ry into India, ins insurance urance clai claim m policies for users of telemedicine services

From th e do zen areas areas lis listed ted above, we have have distilled distilled three area areass for for action t hat we believe have the highest priority and will have the most impact (Exhibit 21). t t t

Marketing India Educating and Training the Indian Workforce Connecting Connecti ng Indi India a (tel (telecom ecom , IT IT,, ai airp rports orts))

Th es esee provide provide the fundamental ‘infr infras astructu tructu re’ for all sectors sectors to succeed. succeed. For t he remainder of this repor t, we will focus on t hese three areas areas..

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Exhibit 21

HIGH PRIORITY AREAS FOR ACTION

O p p o r t u n it y

Increase income and employment through remote services and tourism

Cr i t i c a l a re a s

Service Sectors (examples)

Marketing India

Remote engineering services

Telemedicine

Health tourism

E-Learning

Heritage tourism

Bio-informatics

BPO

D-I-Y support

Educating and Training Training the Indian Workforce

Connecting India • Telecomm elecommunicatio unication n • IT • Air Airpo ports rts

These three are the infrastructure for all sectors to succeed

Plans in sectors will be made and executed by sectoral agencies and companies

A previous study on Foreign Direct Investment (FDI) undertaken jointly by the Center for International Development at Harvard University and The Boston Consulting Group analysed the decision-making process at MNCs for choosing FDI destination des tination s. T he study reveal revealed ed that th e process process progres progressses thro ugh four stages stages (Exhibit 22). 1. 2. 3. 4.

Screening: Choose a country to focus on Planning: Consider specific opportunities Implementing: Decide to proceed and invest Operating and Expanding: Begin to actually actually make make and/ and/ or sell sell within th e countr y; increa increasse profits profits in the long ru n

The most striking finding of the study was that in most cases India failed to clear even ev en th e first first stage stage of consideration in th e eval evaluation uation pro ces cesss. India fell fell ou t at the screening stag stagee largely largely becaus becausee of a poo r ‘brand’ ima image ge.. Th eref erefore, ore, mark marketing eting India is a very important area for action by planners and corporations alike to stimulate demand for Indian services. Educating and tr aining India’s India’s workforce is the second area that deserves immediate attention. Th e existing existing education education infras infrastructu re cannot cannot meet all all the manpower manpower needs that will will res result ult from from th e identified busines businesss oppo rtu nities. Wh at is required

32

Exhibit 22

FDI DECISION-MAKING PROCESS AT AT MNCs Demand: India falls out largely at the screening stage due to poor brand image Example: Lifecycle of decisions and actions for foreign investments (1) Screening Choose a country to focus on

Planning Consider specific opportunities

Operating and expanding

Implementing Decide to proceed, and invest

Begin Grow to profits actually make and/or sell within the country

Potential FDI $

Supply: Skilled manpower and communication infrastructure key to success Opportunity driven by shortage of workforce in developed countries • Need to have have trained trained skilled workforc workforce e to bridge the gap India Inc. will bridge the shortage of workforce in developed countries by delivering services remotely • Communic Communication ation infrastructure infrastructure key key to service delivery delivery

Actual FDI $

India needs to strengthen its brand image

India needs to train its raw manpower and provide necessary communication infrastructure to tap this opportunity

(1) Based on Harvard-BCG study on FDI in India

are people with professional and vocational skills to suit the emerging demands, rather than people with merely general general educati education. on. Th eref erefore, ore, a responsi responsiv ve sys system tem for voca vocational tional education, education, pref preferab erably ly with priva privatete- sector partic participa ipation, tion, ma may y be required. The third area that requires continuing attention is connectivity infrastructure. Since remote services depend on the availability and quality of the telecommu nication infrastru infrastru cture, crucial netwo rks such as high- capa capacity city intern ati ational onal and and domestic interci intercity ty links links ar aree urgently require required. d. In addition addition to telecom, telec om, adequa adequate te IT inf infras rastructu tructu re (e.g., (e.g., cheap cheap,, eas easy y acces access to co mputing faciliti facilities es)) is required. Inwar Inward d to ur is ism m would also also require improvement improvement o f other physica physicall infrasstru cture such infra such as airpor ts and roads roads.. Improvements required in infras infrastru tru cture in India have received a lot of attention from government agencies and industry asssociations in recent times and as and mu ch action is under way way. N o furth er analys analysis is is required for the purpose of this report. The next chapter outlines specific actions that different stakeholders need to take in the t hree areas areas highlighted above. above. Final Finally ly,, we have have al alsso highlighted specific specific action action items that relate to the two broad opportunities – remote servicing (information technology) and importing the customer (travel and tourism).

T H E A G EN EN D A FO R A C T I O N

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chapter five

Making It Happen Marketing India Despite th e success success of its IT services indu indu str y in global markets markets,, India is perceived perceived un- fa favoura vourabl bly y on some dimens dimensions ions by pros prospectiv pectivee customers. customers. Th e pr incipa incipall sho rtco mings are are perception s of secur secur ity risks, risks, un relia reliability bility of Indian suppliers suppliers generally generall y (other th an IT pe rhaps rhaps), ), and lack lack of sou sou nd infrastru infrastru cture (despite signif ignifica icant nt impro improv vements in telecom recently). recently). Sources of information information th at investors and foreign business executives usually rely on do not convey a favourable impresssion of India. impres India. For most most outsiders outsiders,, India has an image image of an exciting, exciting, but dirty and un saf afee coun tr y. Al Alsso, India needs to move fas faster from from its present present image of  merely merel y ‘lo low w cost’ to become strong strong o n other important dimens dimensions ions of customer customer satis atisfa faction ction such as quality and and in novation. Wh ile sev several eral agencies agencies are working to promote India, their eff efforts are are not coordinated. As a res result, ult, dif diffferent images images of  India are projected and the fragmentation of resources across various initiatives leads to limited impact. R ecognis ecognising ing this wea weakness kness,, the Min is istry try of Com merce created created th e India Brand Brand Equity Fund (IBEF) (IBEF).. Th e IBEF’ IBEF’s charter charter was to prov provide ide suppor suppor t to exporters/ service providers providers to strengthen their own corporate brands and and promote the India Inc. la label. bel. H owe oweve ver, r, the IBEF’ IBEF’s impa impact ct has been limited limited by the mismatch mismatch between its objective and its res resou ou rces and activities activities.. T he Ministry of C omm erce has rec recogni ognize zed d that it cannot, cannot, by its itsel elf, f, run the IBEF IBEF. Theref Therefore ore,, it has commissioned the CII to assist it in redirecting and boosting the IBEF’s efforts. This is a major step in the right direction. Several actions are required to develop India’s image as a reliable and risk-free sou rce for for valuabl valuablee services services.. T hese are: t

34

Define a powerf powerful ul positioning positioning of the India Inc. brand, for example: example: s Talented Ta lented resource poo l, eas easy y scal scalabil ability ity,, can offer offer comp lete solutio solutio ns s Service culture, va value-for-mo lue-for-mo ney destination destination s Attractiv Attra ctive, e, saf afe, e, and friendly tou ris ristt des destination tination

t

t

t

Improve coordination between the government and industry associations (NASS (NAS SCO M, CII, etc.) and and between seve several ral gov governmen ernmen t ministries ministries (tour (tour is ism, m, exter nal aff affairs airs,, commerce & industr industr y): s Send a stronger message s Alignment Al ignment on initiativ initiatives es;; ensure consistent consistent mess messages ages s Exchange learnings Promote India via multiple mediums s H ire a profes professsional PR ag agency ency to ensure that th e perception of India equals reality s Identify champions in the administration in key countries such as the U.S. and U.K. U.K. to support support India s Specif pecific ic marketing marketing campaigns campaigns,, road shows, shows, use of web- sites ites,, etc. Use the India Brand Equity Fund more effectively to coordinate and energise the marketing of India

The agenda for actions by the central and state governments and the corporate sector to achieve these objectives is described in Exhibit 23. Exhibit 23

ACTION AREAS FOR MARKETING INDIA Align brand building efforts Cent ral Government

State Govern ment

• Facilitate Facilitate a convergence convergence of ‘brand ‘brand building’ efforts in ministries of tourism, commerce and external affairs • Facilitate alignment of central government ‘brand building’ with states’ and industry associations’ efforts

• Ensure positioning positioning of state brand brand in line with India Inc. brand

Co rp orate sector • Align ‘brand building’ building’ efforts of industry industry associations, e.g. CII, NASSCOM  – define a powerful powerful positionin positioning g of the India Inc. brand  – hire a profess professional ional PR agency to ensure perception about India equals reality  – create awareness awareness about the the IBEF among other corporates to maximise benefit  – devel develop op other other mechanisms mechanisms to promote India Inc. brand

Align efforts of India Brand Equity Fund Cent ral Government • Transfe ransferr India Brand Equity Equity Fund to an organisation organisation with the appropriate skills and manpower strength to run the fund • Revisit mandate mandate of IBEF IBEF with industry industry associations associations

Corporate secto r • Create a cell within within an industry association association for administering administering the India Brand Equity Fund • The indust industry ry cell should should  – recomme recommend nd a broader mandate mandate to the government government for the India Brand Equity Fund incorporate need for focus on remote services & tourism v

Create favourable climate for investments Cent ral Government • Create favourable favourable climate climate for foreign companies companies wanting wanting to do business in India

M A K I N G I T H A P PE PEN

Stat e Government • Create favourabl favourable e climate within the state for foreign foreign companies wanting to do business in state

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Educating and Training the Indian Workforce Th e nature of action required by India Inc. Inc. would involv involve: e: t

t

t

t t

Investment in education infrastructure and faculty to increase supply of skilled professionals with relevant skills Investment in training institutions to upgrade skill sets required for remote services s Vocational skills s Communication (written and spoken) s Etiquette Strengthening of the education curriculum to include s Practicall kn owledge Practica s Know-how and under standing of other cou ntr ies ies’’ cultures s Foreign language skills s Compulsory English language skills Creative funding mechanisms so that quality education is widely available Standards and bodies to certify skills to ensure employability by WTO members

O ver the last last cou ple of years years,, va vario rio us committees have have stud stud ied and made recommendations recommendati ons for for boo sting the quality quality of human resources resources.. Most of the reports and committ ees hav havee commo n th emes, which suggests suggests that th ere is agreement on what area areass need to be worked on. Howev However, er, the problem problem is the lack lack of al alignment ignment between the va variou riou s interes interested ted parties, parties, la lack ck of continu ity at implementing institution s, and fiscal fiscal constraints (Exhibit (Exhibit 24). We believe that alignment within the Education Ministry on the guiding principles of action action is necess necessary to prepare India for for th e business business oppo rtu nities. T here is al alsso a need for consulta consultation tion between governm governm ents ents,, educati education on experts experts,, and busines businesss organisations organis ations to dev develop elop new new,, more eff effective ective approaches, approaches, es especial pecially ly for profess professional and vocational vocational education. Pos Posssible guiding principles to make the edu cation sys system tem more responsi responsiv ve to the emerging n eeds ar aree shown shown in Exhibit 25. Sugges uggestions tions for for action by central and state governments and the corporate sector are given in Exhibits 26 to 28.

36

Exhibit 24

ROADBLOCKS IN IMPLEMENTATION OF EDUCATION REFORMS

Guiding principles limit action • Education is for development development and social good, not a market fulfilling tool • “Indian-ness” under threat and must be protected through education curricula Lack of continuity & accountability of action results in limited ability to create alignment and get things pushed through • “I will never be able able to finish anything if I am going to move in six months time?” No uniform, well accepted implementation plan • “Inconsistency in approach” approach” • “Bureaucrats frustrated as agreement/buy-in agreement/b uy-in not there” Some recommendations that require significant Government funding face fiscal constraints that prevent clearance • “Man “Many y of our projects projects are blocked in the FM office”

Isolated recommendations made

No significant improvement in improvement the education system

DEAD END

Education seen as a key area of action

Multiple bodies take interest and get involved, e.g. Ministry of HRD, Ministry of Education, PMO/FM, Planning Commission, educational institutions, Industry associations, etc. Multiple studies conducted • “We do at least 40 different different studies on education education every every year” • Reports don’t suggest suggest alternatives alternatives to resolve resolve areas of disagreement

Exhibit 25

ILLUSTRATIVE GUIDING PRINCIPLES FOR ACTION FOR EDUCATION

Primary/Secondary Education

    s     e      l     p      i     c     n      i     r      P

    e      l     a     n     o      i      t     a      R

Higher Education

Technical Technic al Education (Voca (Vocational) tional)

Education supports developme development nt and is a social good

Education supports individual (and collective) needs for research and development

Education supports development of individuals to engage in economic activity

Curriculum should promote “Indianness” (history and culture)

Curriculum covers broad array of relevant and emerging areas with commercialisation potential

Curriculum should be responsive to market needs, and recognised world-over

Basic skills (literacy, learning, etc.) necessary for development of people

Higher education increasingly specialised based on interest (and ‘market’ need)

Skills training prepares individuals for job market

Basic skills in graduates well regarded globally

Many new areas emerging (e.g., biotechnology,, genomics, etc.) biotechnology

History and legacy should be instilled in all (before specialisation)

Private investment necessary to support large cash needs in R&D (support with commercialisation process)

M A K I N G I T H A P PE PEN

Job market diversifying as India becomes service provider to the world Qualifications should be valued in developed markets, as employees will be servicing these markets

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Exhibit 26

ACTION AREAS FOR IMPRO IMPROVING VING HIGHER EDUCA EDUCATION TION (UNIVERSITY/PROFESSIONAL EDUCA EDUCATION) TION) Central Gove rnment

S ta te Gov ernments

Corporate sector

• Increase Increase numbe numberr of institutio institutions ns and capacity per institute to create requisite number of professionals  – aim to target enrolment enrolment of at least 10% of relevant age group up from current ~6% • Esta Establi blish sh a process process by by which which private sector can commercialise research (to increase private investment in R&D) • Incr Increase ease autono autonomy my of existi existing ng institutes in the areas of designing academic curriculum, managing infrastructure, infrastructur e, and management and retention of faculty • Prom Promote ote relev relevance ance (thro (through ugh modification of curriculum) and quality (upgrade infrastructure and training of teachers, etc.) • Allo Allott funds funds to provide provide Intern Internet et and intranet to all higher education institutes to promote familiarity with information technology

• Increase Increase autono autonomy my of existi existing ng institutes in the areas of designing academic curriculum, managing infrastructure, and management and retention of faculty • Prom Promote ote relev relevance ance (throu (through gh modification of curriculum) and quality (upgrade infrastructure and training of teachers, etc.) • Allo Allott funds to provi provide de Internet Internet and intranet to all higher education institutes to promote familiarity with information technology

• Work colla collabora borativ tively ely with with the government to  – promote scientific scientific research research and and experimentation in relevant areas  – improve functioning of government run institutions by providing knowledge and expertise  – provide inputs inputs into the skill skill requirements for the newly trained persons/professionals

Exhibit 27

ACTION AREAS FOR IMPRO I MPROVING VING TECHNICAL EDUCATION

Central Gove rnment • Introduce Introduce courses courses in fields fields such such as biotechnology,, bio-informatics, biotechnology nanotechnology, advanced new materials technology, technology, and alternate energy sources • Set-up a centr central al body body to identify identify upcoming fields in technology in order to incorporate them into the curriculum • Dev Develop elop schemes schemes to to expand, expand, develop and retain the faculty in technical and management institutes • Netw Network ork institut institutes es and create create common laboratories to share knowledge and optimise resources • Promo Promote te relevan relevance ce (through (through modification of curriculum) and quality (upgrade infrastructure and training of teachers, etc.)

38

S ta te Gov ernments • Identify Identify and initiat initiate e relevant relevant courses in areas such as IT, biotechnology, etc. for the polytechnics and other state level technical institutes • Offe Offerr industry-o industry-oriente riented d and practice-based technician degree programmes in selected polytechnics • Dev Develop elop scheme schemes s to expand, expand, develop and retain the faculty in technical and management institutes • Promo Promote te relevan relevance ce (through (through modification of curriculum) and quality (upgrade infrastructure and training of teachers, etc.)

Corporate sector • Feed into into the gove government rnment the the areas where there is an upcoming need for professionals, scientific research and experimentation • Contri Contribute bute know knowledge ledge and expertise in relevant areas to facilitate design of course content and curriculum

Exhibit 28

ACTION AREAS FOR SKILL DEVELOPMENT IN EDUCATED BUT UNEMPLOYED OR SEMI-LITERATE ADULT POPULATION

Central Gov ernment • Set-up Contin Continuing uing Educati Education on Centers (CECs) and Nodal Continuing Education Centers (NCECs) in each state that work with the state government to initiate and co-ordinate training activities aimed at enhancing the employability employabi lity of adults

M A K I N G I T H A P PE PEN

State Gov ernments • Help the the nodal centres centres run by the the central government to identify the professional skills required by employers in the region • Publi Publicise cise the effort effort and motiv motivate ate relevant people to enroll into the courses (~100 million neo-literates who can be targeted) • Suppo Support rt NGOs in the regio region n that are pursuing similar activities

Corporate sector • Work collabo collaborativ ratively ely with with the government to  – impro improve ve functioning functioning of government run institutions by providing knowledge and expertise  – provide inputs inputs into the skill requirements for the newly trained persons/professio persons/professionals nals  – help develop develop content for new course being introduced by providing expertise

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Connecting India Change in the telecom sector has been faster than in other sectors in India. T hrou gh the N ational Telecom Policy fra frameworks meworks of 1994 and 1999, the govern gov ern ment , with in put s fr from om indu str y, fi first rst developed developed a shared shared view view of the desired desired future scenario. scenario. Fundamenta Fundamentall principles to guide the deregulation deregulation and privatis privatisation ation of the industry industry were agreed agreed upon. Th es esee were were to en sure that the pr iv ivate ate sector sector has a ‘lev level el playing playing field’ field’ and that it develops ru ral telecom also. also. Broa Broad d implement ation steps and mileston mileston es were als also o described. Ev Even en th ough t here have have been sev several eral stum bles on the way, way, as there w ill be in any jour ney of rapid change, change, ref refor or ms hav havee been moving alon alon g. T he key factors factors lea leading ding to th e success success in telecom reforms are are described in Exhibit 29. The momentum achie achiev ved in the telecom telecom sector sector has to be maintained. maintained. Continuing change and and growth w il illl lead lead to a shak shakeout eout in the indus industry try.. Th ere will will be disputes disputes over the ch anges in regu lation s as play players ers are are affected, affected, som etim es wit h th eir sur sur viva vivall at stake. T herefore, the cr itical area areass to focus on to d ev evelop elop a healthy healthy telecom sector are: t t

Improve the systems to resolve regulatory issues in a timely and fair manner Devise mechanisms for the telecom operators to overcome the financial crunch in the initial years so as to allow them to roll out their network and services

Exhibit 30 outlines key areas for action by the central government and the corporate sector.

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Exhibit 29

KEY FACTORS FACTORS CONTRIBUTING TO SUCCESSFUL REFORMS IN TELECOM Telecom reform on priority agenda of influential people in the Government (ministers, bureaucrats) Reforms pushed by industry due to their self-interes self-interestt • Industry association associations s • Private players

Action agenda –  Ability for all stakeholders to get to a common ground; disputes resolved quickly

No fiscal constraints on the Government to implement reforms – rather, reforms a source of income Reforms in Telecom less complex as significantly smaller number of issues involved as compared to other topics such as education

Policy measures taken/revised to ensure reforms

Successful reforms in telecom

Roadblocks faced - pressure from government owned monopolies, red-tape, policy decision did not serve the requisite purpose

Source: BCG interviews interviews

Exhibit 30

ACTION AREAS FOR IMPRO IMPROVING VING TELECOM INFRAST RUCTURE Modify regulations Cent ral Government

Corporate secto r

• Specify time time limits for various various regulatory procedures including dispute resolutions, interconnection and quality of service • Exped Expedite ite the process process of introduct introduction ion of a common single license for all telecom services

• Develop a frame work/formal process process for interaction between regulator and corporate sector so as to provide inputs in policy formulation and give feedback

Relax taxation Central Government • Temporarily relax the revenue revenue share paid to the government so that operators have more cash cash to invest in telecom infrastructure

Facilitate financing of telecom companies Central Government • Include telecom as priority sector for for funding by banks and other other financial institutions institutions

M A K I N G I T H A P PE PEN

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Sector-Specific Actions Specific actions will be required in all the sectors that have the opportunity to earn foreig oreign n income from from remot e servici servicing ng and import ing customers. customers. As wa wass mentioned at the ou ts tset, et, the pu rpose of this report is not to deli delineate neate the plans for all all those those who, by their activ activee involv involvement, ement, ca can n benefit from from the h uge opport unity for India. India. Play Pla yers in every every sector will have have to devel develop op t heir own specifi pecificc plans. plans. As an illus ill ustration, tration, we hav have described described the broa broad d agenda for for t wo sectors sectors.. Th es esee sectors sectors are are infor inf or mation technology technology for remote servici servicing ng and and trav travel and tourism tourism for importing customers. cus tomers. We are awa aware re that much work h as been don e alrea already dy in the IT sector and that plans are being discuss discussed ed to d ev evelop elop tou rism. T he plans and actions by people involved involved in these sector sector s will be, and shou shou ld be, more precise precise than what we describe. des cribe. Th e pur pos posee of this report report is to provide a stimulus stimulus and not to t ak akee over over the work of others.  Information Technology

India is one of the leading exporters of IT services – driven mainly by the ava vail ilabi abili lity ty of a lowlow- cos cost, t, Engl Englis ishh- speaki peaking, ng, qual qualif ified ied labour labour force orce.. But hu ge gaps gaps continue to exis existt on the supply supply side side – the digital digital divide divide,, for instance instance.. Wh il ilee the urban pop ulation, with access access to mo der n facilities facilities,, is increas increasingly ingly getting used to computers, rural India is is mos mostly tly starv tarved ed of IT facili facilities ties.. O n the market side side,, India is facing competition from other countries such as China and may lose its current advanta adv antage ge if it does not mov movee fas faster. Th eref erefore, ore, the challenge challenge in IT will be to leverage lev erage Ind ia’ ia’ss stren gth o f skilled, English- speakin g manpower to remain a leader leader in the IT services arena. Exhibit 31 details the action agenda outlined by the HLSG for the IT sector. Travel and Tourism

Cu rrently rrently,, India has a very very smal smalll share share of the world world tour is ism m market. market. In 2000, India (1)). received a mere 2.6 million of the nearly 700 million international tourists(1 Th ere are are very very good reasons reasons why this number is so dismal dismal.. Cu rrent exter nal sources of inform inform ati ation on do not portray a pos positiv itivee image image of India. India. Intern ationa ationall tou rists who visit India have have a mixed experience. W hile most most retur n satis satisfi fied ed with the variety of un ique exper iences India has to offer, offer, saf afety ety,, clea cleanliness nliness,, and quality quality of infras infrastructure tructure still still bother many. many. Th eref erefore, ore, returning visitors, visitors, by and and large, large, describe des cribe their expe experience rience to others as “good, or even even very very good, good, BUT …”. Q uite clearly clea rly,, attracting a la larger rger numb er of inter nation al tou rists and providing them with a high quality experience are the challenges for India. (1) Source: World Tour is ism m O rganis rganisation ation 42

Exhibit 31

ACTION AREAS IN INFORMA INFORMATION TION TECHNOLOGY Easy financing for IT projects Corporate sector • Develop Develop confidence amongst the financial institutions in the potential potential of IT sector by conducting seminars and publishing reports like the NASSCOM report • Devel Develop op a framework/norm for for financing working capital capital by considering the intellectual/human intellectual/human capital as a part of tangible assets

B r i d g e t h e D i g i t a l Di v i d e

Set up technology park s

Corpo rat e sector

St ate Govern ments

• Seek help from NGOs for for providing IT education in rural areas • Invest in in R&D for for developing developing affordable affordable computer devices

• Set up technology technology parks like Hyderabad Hyderabad for for IT companies

Single window clearance of IT enabled services

Interna tional mark eting

Cent ral Government

Central Govern ment

• Provide facility facility of single window window clearance clearance for IT enabled services industry

• Identify top 10 markets for Indian IT services and undertake professionally designed marketing campaigns in these markets

To develop the potential of India as one of the finest tourist destinations in the world, India Inc. shou ld consider consider the following following goals goals:: t

t

t

Develop a few tourist attractions to world-class standards s Identify 5-6 tourist circuits and develop them s Th e central central gov governmen ernmen t, state gov governmen ernmen ts ts,, and the corporate sector sector will need to work together to develop these places Build an effective international marketing campaign to attract tourists s Hire a professional agency to prepare a marketing plan for key locations Ensure a smooth and hassle-free stay for the tourists s Visa on arrival s Tourist security police at important destinations s Private Priva te partici participati pation on for mai maintaining ntaining key monumen ts ts// properties

The HLSG has outlined an action agenda for the stakeholders in order to achieve the t hree goals goals identif identified ied above above.. T hes hesee are are detailed detailed in Exhibits 32, 33 and 34. Other areas in which action is required are the development of adequate manpower to provide world- cla classs ho spitality services, services, improvement o f airpo airpo rt fa facilities cilities to provide prov ide hass hassle-fr le-free ee travel, travel, and development development o f highhigh- end h ea ealth lth care infras infrastructu tructu re re.. An agenda outlined by th e H LS LSG G for th es esee th ree areas areas is giv given en in Exhibits 35, 36 and 37.

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Exhibit 32

ACTION AREAS IN TRAVEL TRAVEL AND TOURISM TOURISM (I)

Integrated development of identified travel circuits Central Gove rnment • Identify Identify 5-6 tourism tourism circuits circuits for for development (1) • Appoi Appoint nt one senior senior bureaucr bureaucrat at per circuit who will have complete responsibility for that circuit • Prepar Prepare e an action action plan plan for for integrated development of these circuits to international standards • Dev Develop elop transport transport infrastruc infrastructure ture for the circuit • Co-or Co-ordinat dinate e with with state governments and corporate sector for developing these sectors • Co-or Co-ordinat dinate e with other other ministries ministries (e.g. railways, finance, etc.) as required

S ta te Gov ernments • Participate Participate in the proce process ss of preparing the action plan to develop identified circuits • Co-or Co-ordinat dinate e with local local authorities authorities as required by the plan • Provi Provide de tax incentiv incentives es and other other benefits for developing tourist infrastructure on the circuit • Actua Actuall executi execution on of the the plan

Corporate sector • Participate Participate in the proce process ss of preparing the action plan to develop identified circuits • Build enterta entertainmen inmentt and and accommodation infrastructure at the identified locations

(1) Tourism circuits are routes international international tourists can take while while touring in India – each tourism tourism circuit will have 5-6 destinations destinations of tourist interest

Exhibit 33

ACTION AREAS IN TRAVEL TRAVEL AND TOURISM TOURISM (II)

Develop effective marketing plans and programs

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Central Gove rnment

S ta te Gov ernments

• Develop Develop a positioning positioning statemen statementt for India Inc. (Example: ‘Malaysia –  Truly Asia’, ‘Amazing Thailand’) • Dev Develop elop comprehen comprehensive sive official official Indian tourism web-site covering information regarding traveling, accommodation, site-seeing, etc. • Appoi Appoint nt a profession professional al PR agency agency to manage India’s image as a tourist destination on a full time, ongoing basis • Equip the the 18 oversea overseas s tourism tourism offices with latest information and marketing brochures • Get professio professional nal assistanc assistance e for preparing marketing plans targeting key geographies

• Develop distinctive positioning for the State (Example: ‘Kerala ‘Kerala –  God’s own country’) • Provi Provide de state specifi specific c inputs for for the official Indian tourism web-site

Corporate sector • Location/e Location/event vent specific specific marketing marketing through travel agents, web-site, etc. • Provi Provide de latest latest informatio information n for the official Indian tourism web-site

Exhibit 34

ACTION AREAS IN TRAVEL TRAVEL AND A ND TOURISM TOURISM (III) ( III) Enhance visitor experience Ce ntral Government • Enhance Enhance service service qualit quality y and efficiency in visa issuance (e.g. visa on Sundays, reducing time required to issue a visa, etc.) • Ident Identify ify countries countries whose whose citizens citizens can be provided visa on arrival and implement the ‘visa on arrival’ system as soon as possible • Emplo Employ y professio professional nal property property management agencies to manage airports, railway stations, bus stations, etc. • Seek corporat corporate e sector particip participation ation in maintaining specific tourist attractions • Redu Reduce ce taxes taxes for tourism tourism related related industries like hotel and travel • Set up an independ independent ent certificati certification on agency that will grade all tourist related services

State Governme nts • Deploy Deploy tourist tourist security security police police at all important destinations • Reduc Reduce e state taxe taxes s on tourism tourism related industries like hotel and travel

Corporate sec tor • Participate Participate in in government’ government’s initiative to outsource property management services • Partic Participate ipate in in government’ government’s initiative to seek corporate sector’s help in maintaining specific tourist attractions • Provi Provide de best possib possible le services services to the tourists

Exhibit 35

ACTION AREAS F OR IMPROVING HOSPITALITY HOSPITALITY SERVICES Human resource development Ce ntral Government • Set up addition additional al institute institutes s for training students in hotel management and catering technology (it is estimated that only 50% of requirements can be met by current capacity in these institutes)

State Governme nts • Organise Organise mobile mobile training training courses courses at low cost for small-scale agencies involved in servicing tourists (low grade hotels, travel agents, entertainment centers, etc.)

Corporate sec tor • Ensure proper proper trainin training g of staff for for servicing tourists

Other initiatives Ce ntral Governme nt • Set up market market intelligen intelligence ce network network to provide latest and reliable tourism data • Educa Educate te all ministries/G ministries/Gove overnment rnment bodies of the benefits of tourism to make it a national priority

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State Governme nts • Plan cultur cultural al events/ events/trade trade seminars/food festivals festivals to attract international tourists • Dev Develop elop rural rural handicrafts handicrafts industry industry

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Exhibit 36

ACTION AREAS F OR IMPROVING AIR-TRAVEL Restructure airports Cent ral Government

Corporate secto r

• Expedite Expedite the process process of restructuring restructuring airports through through corporate sector participation • Formulate formal guidelines for corporate sector sector participation in airport infrastructure and set performance standards • Regu Regularly larly monitor monitor the airport airport infrastructure infrastructure and services against specific standards

• Participat Participate e in building building airport infrastructur infrastructure e • Ensur Ensure e performance performance against against standard standards s set by government

Formulate civil aviation policy Central Government • Formulate a comprehensive comprehensive civil aviation aviation policy covering covering all aspects relating to regulatory regulatory framework, airport infrastructure, domestic and international air transport, etc.

Allow equity participation for foreign airlines Central Government • Review the ban on equity participation by by foreign airlines since foreign airlines have have experience in this business business

Exhibit 37

ACTION AREAS FOR DEVELOPING HIGH-END HEALTHCARE HEAL THCARE INFRASTRUCTURE I NFRASTRUCTURE Develop infrastructure for providing high-end healthcare Cent ral Government

Co rp orate secto r

• Create incentive incentive structures (e.g. tax breaks) which encourage the corporate sector to set-up more infrastructure

• Need to set-up more high-value hospitals/health care facilities – specialty facilities with state of the art equipment and high ser vice levels • Develop Develop business models to make make these facilities facilities have have a smaller gestation period

Set-up a healthcare insurance base in India Corporate sector • Private firms in the insurance insurance sector should set-up medical medical insurance facilities facilities and also tie-up with with foreign insurance insurance companies to cover foreigners coming into India for healthcare facilities • Corporates in the healthcare sector sector should actively actively control medical fraud, insurance insurance fraud in order to encourage encourage insurance firms to provide medical insurance products

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Finally,, we repeat t hat t hese are Finally are suggestion suggestion s by the H LSG to stimulate ideas and and actions. ac tions. U nles nlesss the peo ple who must make make changes tak takee ownership of the solution, solution, by developing developing th e solutio solutio n th emsel emselves ves,, and un les lesss they move in alignment alignment and fasster, India will mis fa misss a huge oppor tun ity to boo st its econ omic growth and provide employment to millions of educated young people.

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chapter six

Conclusion 1. India can can accelerate accelerate its economic growth and mitigate mitigate the unemployme unemployment nt problem that is forecast for the coming decades by seizing a huge opportunity provided prov ided to it by a combination of global global deve developments lopments in in indu stry try,, trade trade,, and demographics 2. Many agenci agencies es in India need to ac actt now to prepare to capital capitalis isee on this oppor tunity tunity.. Ev Even en in a pes pessimis imistic tic scenario scenario of gl global obal economic growth, growth, the gains ga ins for India are are very very large large.. Th eref erefore, ore, we shou shou ld not waste waste further time debating debati ng the precis precise siz sizee of this opport unity unity.. R ather ather,, we must must move move to action action 3. T he H LS LSG G has identified changes required at the macro level level and and h as recommended solutions. solutions. Co ncerned agencies agencies mus mustt now be vigor vigorousl ously y engaged. Action is al alsso required in m any sector sector s where bu siness people and government agencies must continue to work together or begin to work  together more ef efffectiv ectively ely to ensure ensure th at India Inc. wins Entrepreneurship in tho ught and action, al Entrepreneurship alignment ignment amongst amongst actors, actors, and speedy speedy execution are the keys to success.

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MEMBERS OF THE HIGH LEVEL STRATEGIC GROUP

Mr Jamshyd Godrej, Managing Director, Godrej & Boyce Mfg Co Ltd Mr Madhur Bajaj, Vice C hair man, Bajaj Bajaj Auto Ltd Mr Suman K Bery , Director Gen eral eral,, NC AER Dr R A Mashelkar, Direct or Ge neral, C oun cil of Scientific & Ind ustrial R es esearch earch D r Shankar Acharya , H ony Profess Professor, IC R IER Mr Rajendra Pawar, Chairman & MD, NIIT Ltd Mr Deepak Parekh , Chairman & MD, HDFC Mr M V Subbiah , Chairman & MD, EID Parry’s (I) Ltd Mr C K Birla , Chief Executive, Hindustan Motors Ltd Mr Nikhil Nanda , Executive Director, Escorts Ltd Mr Sudhir Jalan , Chairman & MD, Bells Controls Ltd D r J J Iran i , Director, Tata Sons Ltd Mr Sunil Mittal , Ch airm an, Bhart Bhart i Telecom Dr Ram S Tarneja , Management Profes Professsion al Prof R S Sirohi , Director, Indian Institute of Technology, Delhi Prof J L Saha , Director, Indian Institute of Management, Ahmedabad Mr Tarun Das , Director Director General, C II Mr P hiroz Vandrevala Vandrevala, Ex-Chairman, NASSCOM Dr Pratap Reddy , Chairman, Apollo Hospitals Enterprises Mr Arun Arun Maira, Chairman, Boston Consulting Group (I) Mr Subodh Bhargava , Advisor, Eicher Group Mr R Gopalakrishnan , Executive Director, Tata Sons Ltd Mr K K Nohria , Chairman, Crompton Greaves Ltd Pro Pr o f Abad Ahmad , Profess Professor, Faculty Faculty of M anag anagemen emen t Studies, Delh i U nivers niversity ity Mr Ravi Boothalingam , Chief Executive, Manas Advisory Mr Rajive Kaul , Chairman & MD, NICCO Corporation Ltd & President, AIMA Maj Gen D N Khurana , DG, AIMA