India
business & trade Indian enterprise. Global opportunities
JAN 2020
` 150
“STARTUP ECOSYSTEM HAS ENTERED NEXT PHASE OF GROWTH” - Deep Kalra, Founder & Group CEO, MakemyTrip
“INDIAN DREAM NEED NOT BE REPLICA OF US”
- Vivek Suneja, Professor, Faculty of Management Studies, Delhi
A holistic & visionary perspective on India’s transformation in the last 20 years.
FORESIGHT Trade Promotion Council of India
Department of Commerce Ministry of Commerce and Industry
India’s Largest B2B Sourcing Trade Fair for F&B Processing and Packaging Technology & Machinery 08 | 09 | 10 January, 2020 India Exposition Mart, Greater Noida
KEY FEATURES
BUYER SEGMENT • • • • • • • • • • •
500+
Global Hosted Buyers From 40+ Countries
1000+
Top Food Processers from India
Co-located Trade Shows
Food Processing Fruit juice Processing Dairy Edible Oil Processing Processing Bakery and Confectionary Sweets and Snacks Ready to Cook & Ready to Eat Spices Pulses, Grain, Rice, Sugar & Oil Tea & Coffee FMCG
Contact SAURABH CHOPRA Mobile: +91-9205883418 Email: exhibitor.ift@tpci.in
FOOD CHEM
MR. ANIK ROY Mobile: +91-8287900310 Email: info.ift@tpci.in
www.indusfoodtech.co.in TRADE PROMOTION COUNCIL OF INDIA
9 Scindia House, 2nd Floor, Connaught Circus, New Delhi - 110001, India Phone: +91 (11) 40727272 | Email: tradefair@tpci.in
India
From the Chairman’s desk Dear Readers,
business & trade Indian enterprise. Global opportunities
Vol 1 | Issue 7
Jan 2020
TPCI CHAIRMAN: Mohit Singla
As TPCI’s dynamic team makes earnest preparations for the third edition of IndusFood (January 8-10, 2020), one can’t help but feel a sense of nostalgia and enthusiasm at the momentous journey we have travelled. IndusFood was incepted with a vision to facilitate Indian F&B businesses, irrespective of size, in their quest to integrate with global markets. India’s potential is unquestionable, thanks to its rich resource base, fertile land and the unparalleled legacy of generations of farming expertise. With 20 agroclimatic regions, all 15 major climates in the world exist in India. The country is among the world’s leading producers of a variety of cereals, fruits & vegetables, milk, spices, tea, coffee, cashews, marine products, etc. India’s food processing industry is one of the largest in terms of production, consumption, export & growth prospects. The food & retail industry in India is projected to reach US$ 482 billion by 2020, driven by the large farm sector, growing domestic demand and cost competitiveness. Exports of agricultural and processed food products stood at US$ 18.73 billion in 2018-19. As envisaged in the Agricultural Export Policy, 2018, the country aims to enhance its exports of high value and value-added products. However, the share of these exports in India’s total agricultural exports is currently less than 15%, compared to 25% in US and 49% in China. To truly experience the benefits of globalization, Indian food processors should aspire to leverage their expertise and indigenous resource base to expand their portfolio. They have the wherewithal to also export the native food products of these countries. The aim should be to go beyond the diaspora and capitalize on all such opportunities across markets. An initiative of TPCI, with the support of the Department of Commerce, Government of India, IndusFood 2020 is set to be even grander than the previous highly successful editions; with the addition of two concomitant shows – Indusfood-Tech (food & drink technology companies) and Indusfood-Chem (food & health ingredient manufacturers). Across these shows, IndusFood 2020 is hosting 700+ exhibitors and 1,000+ international hosted buyers from 80+ countries with over 23,000 sq m of exhibition space. Around US$ 1.5 billion worth of on-spot business is expected to be transacted at the fair. With its expanded mandate, IndusFood 2020 will be a key platform for Indian exporters of value added manufactured food products to access the best of technology and ingredients to go global. With the active collaboration of our esteemed stakeholders, we are optimistic that IndusFood will play a pivotal role in making India the most attractive production hub for the global F&B industry. This is a vision that India truly deserves to own, and it will continue to inspire our endeavours in the coming years. Wishing you all a very happy and prosperous new year 2020!
EDITORIAL DIRECTOR: Sameer Pushp EDITOR: Virat Bahri WRITERS: Abhishek Jha, Nikhaar Gogna, Sneha Varma, Preeti Kumari
DESIGN SR. ART DIRECTOR: Prakash Shetty DESIGNER: Ajay Kumar Singh India Business & Trade is a monthly magazine published by Trade Promotion Council of India, 9, Scindia House, Connaught Circus, New Delhi- 110001, India and printed at SR Advertising, B-198, 2nd Floor, Okhla Industrial Area, Phase-1, New Delhi. Material in this publication may not be reproduced in any form without the written permission of TPCI. Editorial/external opinions expressed in this magazine are not necessarily those of TPCI, and TPCI does not take responsibility for the advertising content, content obtained from third parties and views expressed by any independent author/contributor. For editorial queries/feedback, contact: editorial@tpci.in For advertising queries, contact: advertise@tpci.in
MOHIT SINGLA Chairman, TPCI
TPCI.IN
12
20/20 FORESIGHT 30
TABLE OF
CONTENTS 4
TPCI News Buzz Latest trade and business news updates from across the world.
CATR DATA CRUNCH 10 Statistics: Investment An overview of the investment story of India, major sectors and states receiving FDI and rank on the FDI attractiveness index.
COVER STORY CELEBRATE INFOSYS Prof. Anand Nandkumar, ISB cautions against making value judgements on Indian startups.
34
12 20/20 Foresight A holistic & visionary perspective of India’s progression in the last 20 years. 16 Indian dream need not be a replica Vivek Suneja, Professor, Faculty of Management Studies, feels a nation’s development is more than just economic growth. 18 Time to get bigger & bolder India has grown its export share and achieved some degree of value addition. But it still has a lot of catching up to do. 20 M id-flight course correction While India awaits the return of animal spirits of its private sector, the wisdom from the past decade must not be forgotten. 22 Fuelling new growth engines Services sector has contributed hugely to GDP and trade. But India should work towards a more diversified export basket.
REFORMS PHASE 2
Professor D. Tripati Rao, IIM Lucknow believes that factor market reforms are crucial for Make in India.
2 | India Business & Trade • January 2020
24 Keeping the promise intact Stability in tax laws, transparent dispute settlement & improvement in contract enforcement will boost investments. 26 Citius, Altius, Fortius The startup ecosystem was undoubtedly the ‘X’ factor for India that was not anticipated at the turn of the century.
28 “Feedforward effects of a robust startup ecosystem are tremendous and far reaching” Deep Kalra, Founder & Group CEO, MakeMyTrip, believes that startups have been successful in driving economies of scale.
42
30 “Why should there be Googles, when we celebrate Infosys?” Prof. Anand Nandkumar, Research Director, Indian School of Business, lauds the innovation capabilities of Indian startups. 31 Liberating the bird of gold India’s consumption story has been arguably the key highlight of its attractiveness post-2000. But it needs a shot in the arm. 33 Indian companies will create the power of their brands Dr. Amit Kapoor, Chair, Institute for Competitiveness opines that India will see the rise of more homegrown brands. 34 “Investors look for sustained ROCE” Prof. D Tripati Rao, IIM Lucknow, believes that speed of execution & implementation of factor market reforms is crucial.
FOCUS SECTOR: MEDICAL DEVICES
HISTORY OF RBI
A peep into the illustrious past of the Bank of Bankers reveals a number of interesting anecdotes.
44
36 Medical Devices: From misery to opportunity India needs to bridge the ecosystem gaps affecting its medical devices industry to counter its import dependence. 40 “We can repeat the success story of mobile phones” Rajiv Nath, Founder and Forum Coordinator of AiMeD, stresses on the need to incentivise quality. 41 “India needs to build capability and capacity” Gaurav Agarwal, MD, IITPL opines that Indian companies have a lot of ground to cover on R&D.
FOOD TRENDS 46 From Bikaner to Bahrain, rise of a global F&B brand After winning mind share among domestic audiences, Bikaji is looking to tap the growing demand for cross-country products.
COLLABORATION IS KEY Stephen Manallack, Chairman, Genesis India-Australia Horticulture Project bats for better bilateral ties.
54
48 “We are leaders in de-humidification” Vijay Chaudhry, Exec VP, Intnl Business, Bry-Air (Asia), reveals how the company built a loyal global customer base.
FOOD TRENDS 50 Food colouring: Appearance does indeed matter Stringent quality standards, reasonable pricing and constant innovation are key to success in this industry. 52 Indians should embrace their local cuisines Lifestyle coach Luke Coutinho feels that Indian food is scientific, varied, tasty and healthy at the same time.
LATEST@TPCI
TPCI organized pavilions at trade fairs in Vietnam, France, UAE & a BSM in Afghanistan.
January 2020 • India Business & Trade | 3
News buzz
International
Welcome thaw in US-China trade winter?
U
S and China announced mutual agreement on a Phase 1 trade deal on December 13 to slow down the tempo in their protracted trade war. Under the terms of this deal, US has agreed to bring down some of its tariffs on Chinese goods, conditional on increased Chinese imports of US agricultural, manufactured and energy products by around US$ 200 billion over the next two years. China has also consented to better protect US intellectual property, control the coerced transfer of American technology to Chinese firms, open its financial services market to US companies and avoid any further manipulation of its currency. US President Donald Trump stated that China would be
purchasing US$ 50 billion of agricultural products soon, including poultry and soybeans. The Chinese side has not made any claim in terms of actual values in its briefing.
However, the US did not impose planned tariff hikes on Chinese goods on December 15, and the latter did not take recourse to retaliatory hikes either.
WTO Appellate Body goes dysfunctional
S
ince no resolution of the impasse with US on its functioning came through, the Appellate Body of the WTO’s Dispute Settlement System was officially rendered dysfunctional on December 11, as two of its three
remaining judges ended their terms. As of mid-2017, the body was reduced to three members, the minimum required for its functioning. When the time for new appointments came, the US blocked them by highlighting that the body functioned
4 | India Business & Trade • January 2020
as a “court” and it had never agreed to the style of its functioning since the birth of the WTO. As a result of the shutdown, the body is no longer in a position to consider new appeals after December 10; dealing a severe blow to the entire multilateral trading system, as WTO rules impact around 98% of total world trade. Rohan Shah, India’s Representative & Governor on the Board of Economic Research Institute for ASEAN & East Asia, stated, “India has several critical trade disputes currently pending at WTO... the spotlight will now firmly be on Regional Trading arrangements like ASEAN.” Experts fear that this will make it easier for members to flout rules without fear of action. EU, Canada & Norway have proposed an interim mechanism to rule on future cases for the time being.
Coal power set for record fall
NUMBER GAME
2.5% Projected
G
lobal electricity production from coal is slated to drop by 3% or 300 terawatt hours (TWh) in 2019, which is the largest drop ever. This is higher than the total output from coal in Germany, Spain and UK in 2018. The analysis is based on the monthly electricity sector data from across the world for the first seven to ten months of 2019 as per the latest available data in each country. US is witnessing the largest reduction, as a number of large coalfired plants shut down. Germany, EU and South Korea have also witnessed sharp falls. India has also been a major contributor, as coal power output is on track to fall for the first time in three decades. Conversely, Southeast Asian nations are seeing sharp growth, but their contribution is too small
global GDP growth in 2020 vis-àvis 2.6% in 2019. (Fitch) to counter the drop from the larger countries. Decline in coal power was witnessed only twice in the past three and a half decades – 2009 (after the global financial crisis) and 2015 (China slowdown).
Johnson wins British elections
P
rime Minister Boris Johnson grabbed a huge election victory that brought him back to power in UK. This gives him the mandate to finally end the stalemate and get Brexit done by January 31. The Conservatives won 364 out of 650 parliamentary seats, their largest haul since Margaret Thatcher’s victory in 1987. The victory gave Johnson a leg up over anti-Brexit rivals who were trying to stop his advance. After his victory, Johnson emphatically told his supporters, “We will get Brexit done on time by the 31st of January,
no ifs, no buts, no maybes.” He laid out his campaign promises once again, “Leaving the European Union as one United Kingdom, taking back control of our laws, borders, money, our trade, immigration system, delivering on the democratic mandate of the people.” Going forward, Johnson also has to work on new trade deals and ensure that London retains its position as a top global financial capital. He also faces a challenge with Scotland, which wants an independence referendum as well as with Irish nationalists.
$29.3 bn
Estimated net profit of global aviation industry in 2020. (IATA)
1.5% Projected
export volume growth in 2020 for Asia-Pacific region. (UNESCAP)
January 2020 • India Business & Trade | 5
IN QUOTES
World economy at its weakest
A Roberto Azevedo Director General, WTO (on the Appellate Body)
These are extremely complex conversations and negotiations and very political in nature... this is not something that is going to be solved overnight.
ccording to data from the IMF, the global economy recorded its weakest growth since the global financial crisis in 2019. Increasing trade barriers and the resultant uncertainty weighed heavily on business sentiment, magnifying the impact of cyclical and structural slowdowns in advanced economies and China. Gita Gopinath, Economic Counsellor and Director, Research Department; Gian Maria MilesiFerretti, Deputy Director, Research Department and Malhar Nabar, Division Chief, World Economic Studies Division at IMF also state in their blog, “Further pressures came
from countryspecific weakness in large emerging market economies such as Brazil, India, Mexico, and Russia. Worsening macroeconomic stress related to tighter financial conditions (Argentina), geopolitical tensions (Iran), and social unrest (Venezuela, Libya, Yemen) rounded out the difficult picture.” Businesses also became more cautious on longterm spending and global purchases of machinery and equipment witnessed deceleration. There was a fall in household demand for durable goods, particularly with automobiles, which were impacted by regulatory changes, new emission standards and the shift to ride-shares.
Netflix reveals growth ambitions
N Michel Barnier Chief Brexit Negotiator, EU
The United Kingdom will leave the union. We respect this choice. Clearly it is not leaving Europe. Does it want to distance itself and to what extent from our regulatory model?
etflix showed its global ambitions in an investor document for the first time, with the punchline, “Disney is chasing Netflix. So is Apple. AT&T and Comcast are about to start. Have fun, says Netflix: We’re busy chasing the entire world — and we’re doing pretty well.” The report also comes in the backdrop of intensifying competition and slowing growth in the US. However, both Netflix and its competitors are finding strong traction in global markets. The company pays much attention to grabbing global rights for whatever programming it buys or creates. Coming to growth rates, Netflix had 19.7 million subscribers by
6 | India Business & Trade • January 2020
March 2017 in Europe, Middle East and Africa. By September this year, that had grown to 47.4 million. Asia, on the other hand, grew from 4.7 million to 14.5 million in the same period. The report also revealed the different subscription charges it gets from different markets from US$ 12.36 /month/customer in US to US$ 8.21 a month in Latin America and US$ 3 a month for mobile-only subscriptions in India.
News buzz
National
Drop in India’s exports & imports in Nov
D
ata released by the Ministry of Commerce and Industry revealed that India’s exports declined by 0.34%, a drop for the fourth successive month in November. Cumulatively, the exports for the period of April-November, 2019-20 stood at US$ 211.93
billion, a decline by 1.99% YoY in dollar terms. On the other hand, the country’s imports dropped by 12.71%, contracting for the sixth straight month. The former has been attributed to continuing weak global demand and depressed global crude oil prices that impacted
the processed petroleum products basket. India’s imports were driven by petroleum, engineering and industrial products. The country’s trade deficit narrowed to US$ 12.12 billion against US$ 16.61 billion for the same month last year on account of the lower valuation of crude oil imports. Data also revealed that key export sectors such as leather, gems and jewellery, ready-made garments, and petroleum posted negative growth. On the other hand, electronics (46.13%), drugs and pharmaceuticals (20.6%), marine products (9.03%) and engineering goods (6.32%) were the top gainers. Meanwhile, according to RBI’s latest release, services exports in October reached US$ 17.7 billion, growing by 5.25% YoY in dollar terms. Trade balance was estimated at US$ 6.83 billion.
Unseasonal rain hurts grape industry
A
spell of unseasonal rain in October and November has spoiled grapes sown on lakhs of hectares in Sangli and Nashik, thereby hurting the wine and grape export industries in the country. While in Nashik, crops on around 3.40 lakh hectares were hit by unseasonal rain; the corresponding figure for Sangli was 55,000 acres of grape farms. On an average, the state of Maharashtra crushes 20,000 tonnes of grapes and produces 1.25 crore litres of wine between December and April. This year, however, just 12,000 to 15,000 tonnes of grapes will be crushed, resulting in the production of 70-80 lakh litres of wine. Commenting on the issue, Mr. Rajesh Jadhav, secretary of All India Wine Production Association,
opined, “There will be a 25% reduction in wine production and due to poor quality of the fruit, it will be difficult to maintain quality.” Jagannath Khapre, president of All India Grape Exporters Association
added “Export to Bangladesh and UAE is delayed. Along with that, export to countries in the EU & Australia would remain lower compared to 2018.’’
January 2020 • India Business & Trade | 7
NUMBER GAME
3%*
Drop in India’s palm oil imports in November to 6.71 lakh tonnes, lowest in 18 months
India trying to end EU impasse
I
n a bid to revive FTA (called the Broad-based Trade & Investment Agreement) talks with EU, India is examining the areas where the trade negotiations are currently stuck such as market access demand for automobiles and alcohol and the inclusion of government procurement and labour standards. “The EU believes that there is no point going back to the negotiating table if certain basic issues remain
unresolved. It will serve no purpose if an agreement is reached that has provisions that the EU Parliament will not give its approval to. It is, therefore, vital that the basics are agreed to before we seriously proceed in the negotiations. That is why India and the EU are holding technical discussions on the sticking points to see if they could be resolved,” said a source familiar with the development.
*Solvent Extractors Association, ^India Skills Report, 2020; ~Swiggy
40%^ Share of
employers across a wide range of industries that want engineers on their rolls in 2020
1.6 Biryanis
~
ordered per second in India in 2019, making it the most popular dish
DGFT scraps ‘gift’ channel
T
he government has decided to put an end to the gift channel being used by Chinese e-commerce portals like AliExpress, Club Factory and Shein to ship products to India duty-free by amending the trade policy provisions. This strategy of Chinese e-tailers had come under the scanner last year when customs department started a crackdown on using these gifts to avoid import duty. Further, to circumvent laws, these companies also used to undervalue the products being sold to Indian consumers. According to media reports, these companies were recording as much as 50% less pricing on the invoice compared to the online listing by using courier bill of entry, that is, CBE-13, which enables import of goods valued up to Rs 1 lakh. Previously the government
8 | India Business & Trade • January 2020
allowed goods up to Rs 5,000 (including the courier fee) to be sent as gift. According to DGFT, “Import of goods, including those purchased from e-commerce portals, through post or courier, where Customs clearance is sought as gifts, is prohibited except for life saving drugs/medicines and Rakhi (but not gifts related to Rakhi)”.
TRADE TERMINOLOGY AD VALOREM TAX
Sluggish marine exports likely
A
recent report put together by US-based trade finance company Drip Capital pointed out that India’s marine exports are expected to remain sluggish. This has been attributed to various factors like challenging conditions stemming from tightening of quality regulations by traditional markets like the US and the EU, changes in consumer tastes & preferences as well as stiff international competition on quality. It further predicts that these
conditions are likely to persist and India’s overall marine exports are likely to remain subdued in the coming quarters. “Indian shrimp exports to US face stringent quality checks and scanning along with a hike in antidumping duty to 2.34% from 0.84% in 2018, which has had a negative effect on shipment volumes,” Drip Capital co-founder and co-CEO Pushkar Mukewar stated. He added that overdependence on Vannamei shrimp exports is unsustainable.
Any tax imposed on the basis of assessed monetary value of the taxed item. Literally the term means “according to value.” Ad valorem rates have the advantage of adjusting tax burden according to the amount the consumer spends on taxed items. So they avoid the serious discrimination of specific rates against low-priced varieties of commodities. While commonly used in realty, ad valorem taxes also extend to a number of tax applications like import duties.
IN QUOTES
Shri Piyush Goyal Commerce and Industry Minister
Amitabh Kant CEO, NITI Aayog
“Today, it is in our policy that if our companies are not allowed to do business or opportunities emerging in any country, I can assure you that we will not allow them to participate here.
Our process of urbanisation, infrastructure creation, using technology to leapfrog has just begun and you will see a huge growth in the next three decades on the foundation of the reforms that have been carried out.
January 2020 • India Business & Trade | 9
CATR Data Mining 1
`
GLOBAL FDI TRENDS Business uncertainty may continue to impact FDI inflows in the near term.
Back to Uncle Sam
FDI flows in 2018 were at the lowest since 1999. The sharp decline is because of the tax reforms of 2017 in US, which compelled American companies to bring home large sums of money held with foreign affiliates.
2,500 1,985
2,000
1,561
1,500
`
1,344
1,000 640
500 0
2016
2017
2018
H1, 2019
Source: UNCTAD, figures in US$ billion
61 64 70 78 116 139 252 0
40
80
120
160
200
Source: UNCTAD, data for 2018 in US$ billion
10 | India Business & Trade • January 2020
240
280
2014
2015
2016
2017
2018
Source: RBI, figures in US$ million
27,199
60
42,408
42
50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0
43,576
44
46,402
India Spain Australia Brazil United Kingdom Netherlands Singapore Hong Kong China United States
India is among the fastest growing economies and a top FDI destination. FDI peaked in 2016, but has declined since.
38,133
The largest recipient of FDI was US followed by China and Hong Kong.
3
India’s FDI Equity Inflows
28,785
2
FDI inflows of top 10 home economies
2019 (upto June )
Centre for Advanced Trade Research (CATR) is a premier research division of economists and researchers in TPCI. The institution facilitates its diversified stakeholders including Government and industry with inputs on trade and economic development matters.
4
5
Country-wise FDI equity inflows to India
Singapore was the top source of FDI equity inflows in H1, 2019.
120,000
Sector-wise FDI equity inflows
Services has dominated inflows followed by telecom, computer software & hardware, trading and automobile sector.
70,000
100,000
60,000
80,000
50,000
60,000
40,000 30,000
40,000
20,000
20,000
10,000
0 Singapore Mauritius Netherlands 2017
US
0
Japan
2019 (Jan-Jun)
2018
Services
2017
Source: RBI, figures in Rs crore
Computer software & hardware
Trading
Automobiles
2019 (Jan-Jun)
2018
Source: RBI, figures in Rs crore
States receiving highest FDI
FDI has been concentrated in a few states, with the top 5 accounting for over 70% of the cumulative inflows
7
India vs top economies on FDI attractiveness score India was ranked 16 in AT Kearney FDI Confidence Index 2019, a significant drop since consistently ranking among the top five between 2004-13.
140,000
France
Japan
1.54
UK
1.72
1.78
Canada
1.79
2.1 Germany
1.85
0
1.87
20,000
1.9
40,000
1.5 1 23,184
60,000
2
30,698
80,000
2.5
40,682
100,000
89,688
120,000
128,656
6
Telecom
Maharashtra, Delhi, Parts Karnataka Tamil Nadu, Gujarat of UP & Pondicherry Dadra & Nagar Haveli, Haryana Daman & Diu
Source: RBI, figures in US$ million for April, ‘00 to June 2019
0.5 0
US
China
India
Source: AT Kearney, India was ranked 16 on the index in 2019
January 2020 • India Business & Trade | 11
20/20 FORESIGHT
12 | India Business & Trade • January 2020
COVER STORY
20/20 FORESIGHT A holistic & visionary perspective on India’s transformation in the last 20 years.
E
veryone is a great judge of an event when it’s past us. That is why they say hindsight is always 20/20 (crystal clear). But learning from the past can also give you useful ‘foresights’ for the future. At the turn of this century, India had nearly completed a decade of reforms, and was viewed as an economy on the cusp of growth. However, much of this potential was yet to be seen, even as China had already become the ‘factory of the world’. There were even some soothsayers who predicted that India could be the next China. In 2001, Jim O’Neill who was then head of Global Economics Research, Goldman Sachs, coined the term ‘BRIC’, wherein he identified Brazil, Russia, India and China as the key economies that would drive global growth in the coming decade. He also stressed that the era of US-driven globalisation was over and given
projected growth rates of these four economies, they needed to have more voice in global policy and ‘G7’ needed to expand (G20 was founded in recognition of the growing role of developing economies in 1999). In another report published in 2003, O’Neill went on to predict that BRIC economies would overtake the G6 by 2040. Within a decade, the share of the BRIC economies increased from 20% to 30% of global GDP. The BRIC report was quite influential in terms of directing global attention, as well as investments to emerging markets. Later on, South Africa was added to the grouping to form the BRICS. WHY THE ‘I’ IS SPECIAL While China had emerged as a manufacturing superpower, Brazil and Russia were primarily commodity driven. India, on the other hand, was markedly different –
driven by a buoyant services sector, free market democracy and a high demographic dividend (particularly with a huge English speaking population). Presence of worldclass institutions like IITs and IIMs was another plus, fuelling a huge demand for Indian talent worldwide. India suddenly began to catch the attention of the West, especially with the rise of IT/ITeS and BPO sectors; giving it the tag of the ‘world’s back office’. New York Times columnist and three-time Pulitzer prize winner Thomas Friedman‘s popular book “The World is Flat” was inspired primarily by his visit to India’s IT hub Bangalore, where he noted, “I interviewed Indian entrepreneurs who wanted to prepare my taxes from Bangalore, read my X-rays from Bangalore, trace my lost luggage from Bangalore and write my new software from Bangalore.” He met Nandan Nilekani, then CEO
January 2020 • India Business & Trade | 13
20/20 FORESIGHT
of Infosys, who showed him how the company was able to hold a meeting of its entire global supply chain at one place on a super-size screen. Technology was playing the role of a leveller, and Indians could now compete at par with the Western world. The forces of globalization seemed irreversible and liquidity was flooding global markets. India’s GDP growth rate accelerated to 9% between 2004 and 2008. The private sector showed a newfound confidence with mega expansions and even big ticket global acquisitions. Then of course, the global economic crisis struck. India’s GDP immediately fell to 6.72% in 2008-09 from 9.32% in the previous year. The RBI and the government resorted to massive economic stimulus, mirroring the response of their counterparts in other parts of the world. However, the economic stimulus led to building up of massive levels of debt in the corporate and financial sector. The resultant NPA problem is a major reason for the current investment slowdown and overall deceleration in the Indian economy. While the present slowdown has surprised analysts (despite generally sluggish growth across the globe), it obscures the spectacular growth story that India has witnessed in the past two decades. Between 20112018, India’s economy has grown
WHILE RUSSIA AND BRAZIL HAVE FALTERED, INDIA AND CHINA PROVED TRUE TO BRIC ECONOMIST JIM O’NEILL’S PREDICTIONS. by 47.5%. China grew at a higher degree of about 80%, but Russia and Brazil have actually declined, proving to be vulnerable to their overdependence on commodities. Once an economic laggard, India has the third-largest GDP (US$ 8.28 trillion) in purchasing power parity terms after China and US. In fact, India’s average GDP growth rate in the pre-Lehman era (2000-2008) was at 6.1% (World Bank). And it was even higher at 7.1% during 2009-18. With its strong credentials as a consumer market and resource base for young and talented professionals, India remains a highly attractive destination for investment. So while Russia and Brazil have faltered, India and China proved true to O’Neill’s predictions. The Indian economy’s growth has also been driven by the increased rate of development due to industrialisation & automation, and improvement in ease of trade due to reduction in regulation &
14 | India Business & Trade • January 2020
entry barriers. Agriculture & allied sector’s contribution has reduced, but without much reduction in employment dependency on agriculture. Services has contributed the maximum value addition to GDP, and its share has increased in the past two decades. Digitization has been a major catalyst of the Indian economy since 2000, as with other economies across the world. It brings innovation, disruption, transparency, ease of working, new enterprise and job opportunities. Today, the cell phone revolution means instant & cheap access to communication even in remote villages. The number of cell phone connections has just exceeded 1 billion. India has among the cheapest cell phone rates in the world, and secondhand cell phones cost just US$ 5. Besides democratising information, this advancement has facilitated migration out of and remittances into poor areas. Once unconnected, India is now globally connected. Mobile connectivity has also enabled pivotal government-led development programmes like Jan Dhan Yojana. India has become a global hub for computer software
COVER STORY
development. Microsoft, Oracle, SAP, IBM, Accenture, and other top international companies use India as a base. IBM has more employees in India than US, because Indian skills are often as good as and cheaper than those in the western world. The growth in the services sector in India has been linked to the reforms of the 1990s. It started to grow in the mid-1980s, but growth accelerated in the 1990s when India initiated a series of economic reforms after the severe balance of payments crisis. In the past two decades, services has acted as a positive catalyst in fuelling the Indian economy. It also attracted a major share of FDI (18%) since 2000. But perhaps the most notable development was the rise of the startup ecosystem, which neither Jim O’Neill nor Thomas Friedman would have anticipated when they analysed the potential of India’s economy. There is a lot of positive disruption that startups have enabled across sectors in India over a short span of time, which bodes well for the economy as a whole. With the increase in incomes, there has also been an increase in the literacy rate, which is expected to improve further. Moreover, India has one of the youngest populations in the world with 55% below 27 years of age. This is leading to a change in consumption patterns with increase in demand for discretionary services like education, private healthcare providers, personal care, and hotels & restaurants. The Indian market is large and unsaturated, and most services have been opened up for foreign investment. The government has made some very important interventions in the past few years including Make in India, Insolvency & Bankruptcy Code, Digital India, JAM Trinity and GST. India’s rank on the Ease of Doing Business parameter has improved tremendously in the past five years from 142 to 63. Notable improvements have been made in terms of digitization, dealing with insolvency, construction permits,
INDIA’S GDP GROWTH HAS EXCEEDED GLOBAL GROWTH CONSISTENTLY 10 8 6 4 2 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
-2 -4 -6 World’s average GDP growth rate
India’s GDP growth rate
GDP growth rate of developed economies
Source: UNCTAD, figures in %
(Up) Jim O’Neill, former Chairman, Goldman Sachs Asset Management and (Below) NYT columnist Thomas Friedman
SECTOR-WISE GDP SHARE Sector
2000 2010 2018
Agriculture & Allied
21.8
18.2
13.7
Industry
24.5
26.7
27.9
Services
53.7
54.9
57.4
Source: Economic Survey of India, figures in percentage
trading across borders and starting a new business. Going forward, India needs to urgently initiate factor market reforms, as Prof D. Tripati Rao, IIM Lucknow, asserts, “Transparency in policy, intellectual property rights, decrease in the level of corruption, contract enforcement, stable tax regime would be important factors in attracting business investments.” Also, all growth engines need to fire for the economy to grow more sustainably. While India continues to push for diversification and greater market access for services, agriculture’s share in GDP cannot remain static, considering its huge share in employment, for which food processing sector needs a major boost. Even as the world seems ‘way less flat’ and another China-like growth model looks elusive, India needs to enhance its manufacturing competitiveness and manage its trade deficit. Improvements in multimodal infrastructure and logistics are critical in this regard. In the following sections, we take you through India’s transformational journey since 2001, since it first became a part of the BRIC grouping. In hindsight, India has travelled a unique trajectory, skipped some critical boxes and also ticked quite a few others. Understanding what we clicked and missed provides useful perspective on how India must envision its destiny in the coming decades of the 21st century.
January 2020 • India Business & Trade | 15
20/20 FORESIGHT
Indian dream need not be a replica
T
he post-1991 period has been pivotal in the journey of India’s economy. Thanks to liberalisation, globalization and economic growth, there was movement and dynamism, and companies were willing to take greater risk as we entered the 21st century. The presence of world class higher education institutions like the IITs and premier management schools meant that India was well primed to take advantage of its liberalisation policies. This was to provide the fuel for rapid growth in the services sector, particularly in information technology. The growth in IT and IT-enabled services and the BPO industry was not only an employment generator, but also relieved the pressure on the balance of payments (BoP) front. From a BoP crisis in 1991, we now have over US$ 400 billion of forex reserves. But the next major challenge is how are these IT and BPO companies going to react to the challenge posed by AI? Many of them are now in the process of training and retraining employees, and they will have to substantially increase their collaboration with other IT-enabled startups. LOW MARGIN, HIGH VALUE Indeed, startups are increasingly playing a catalytic role. Many of them are formalising India’s huge informal economy and reducing market-related transaction costs in various sectors such as in payments, cab ordering, housing search, clothes, groceries, meals, insurance policies, etc. But going forward, I would be more interested in what they are doing to directly impact production of food, clothing, housing etc. rather than only in marketing these products. Personally, my most admired Indian company is Amul. Its founder Verghese Kurien conceptualized
Vivek Suneja, Professor, Faculty of Management Studies, University of Delhi, feels a nation’s development is more than just economic growth, & cannot be at the expense of environmental & cultural progress. sourcing milk from the farmers, making milk powder from it at facilities employing world class technologies, and creating a supply chain that was unprecedented in India. Kurien accomplished this feat with a perishable product and also ensured value addition with ice cream, paneer, cheese, butter milk, etc. in a highly efficient manner. Imagine that you are selling milk for Rs 42, and Rs 38 is going to the farmer. Within Rs 4, they are managing everything else. Their excellent umbrella branding strategy with the Amul girl covers all their offerings and continues to enjoy great success till date. The Amul story demonstrates what can be achieved when leadership that’s committed to furthering the interests of all stakeholders, including a company’s owners, suppliers and consumers; employs the best technology and managerial systems to create value. The other Indian company that
16 | India Business & Trade • January 2020
I greatly admire is Arvind Eyecare. The founders of Arvind realised that the cost of cataract surgery needs to be drastically reduced to make it affordable for millions of Indians. After studying the business models of McDonald’s and Ford, they decided not to employ nurses and doctors for every stage of treatment and brought in women from the villages. These women were trained in various procedures and the doctor only does the lastmile stitch. The lens was expensive. So they developed intraocular lenses in their own lab that brought down the cost from US$ 150 to US$ 1.5, while meeting desired quality standards. Arvind Eyecare charges from the rich and subsidises the poor. There are differences in the frills for rich and poor patients – like air conditioning, shared kitchens, etc – but medical service is exactly the same. This also gives another valuable insight – that in India, you have to play the low margin-high volume game to be successful in the delivery of societal goals, rather than the other way round. GETTING PRIORITIES RIGHT When it comes to growing the Indian economy and reversing the current slowdown, it is a chicken and egg situation. Will you increase the income first and that will increase consumption demand; or consumption demand will increase first and then income will increase? Income can be consumption driven if consumers are big on credit, like in US where people have low household savings rates. This is not true for the Chinese, who save almost 50% of their income. The low personal savings rate in USA has been fueling China’s economic boom till recent times. So this has served as a macro stimulus for China. And since the US dollar is accepted worldwide, it hasn’t sunk despite huge US trade deficits. Keynes had a fundamental
VIVEK SUNEJA
insight on the Great Recession in US in 1930s, when monetary policies failed. He realized that until the government stepped in to increase aggregate demand such as by increasing government expenditure, the economy may remain stuck in a low demand low supply equilibrium trap. Once expectations of people change, the story can be different. Then you think the economy will grow and start investing, which creates demand. You will set up a factory, employ people, etc. So demand can come from exports, government expenditure or private investment. Consumption is largely endogenous being dependent on current income. The only way it can be made exogenous is when you link it to credit and make consumers optimistic about the future, or by effecting money transfers from government to consumers. With protectionism in the global environment, I don’t think we will be able to replicate the export-led model of growth that China and many other East Asian countries have used thus far. I don’t see this issue going away, even if there is a change in leadership in the US. The income inequalities that have arisen due to globalization have greatly reduced the appetite for continuation of major trade deficits in countries like US and UK. India may have to work harder on markets in the East,
Africa, etc. In this scenario, international trade has to be viewed from three other key angles. Firstly, exports will still be needed to pay for imports, especially because of our high dependence on oil imports. The second reason is linked to productivity improvements. International exposure helps to incentivize firms to upgrade technologies and managerial techniques. Finally, many of our new services start-ups such as Oyo need to expand into foreign markets to achieve scale economies to compete with multinationals. REAL ECONOMY ENTERPRISE I will not give Indian manufacturing very high marks, with the exception of a few sectors, particularly because it is not big on R&D. It is also unfortunate that we haven’t paid enough attention to agriculture, especially drip irrigation, where Israel has done so well. We still rely on water guzzling crops,
INCOME CAN BE CONSUMPTION DRIVEN IF CONSUMERS ARE BIG ON CREDIT, LIKE IN USA WHERE THEY HAVE LOW HOUSEHOLD SAVINGS RATES
which also creates environmental damage. It also does not make ecological sense to grow rice in Punjab and Haryana and sugarcane in Maharashtra. Provision of free underground water and near-free electricity distorts the incentive structure. Moreover, our procurement policy has been overly focused on cereals and we should also be paying much more attention to horticulture. Then you need cold chains, which will boost processed food exports. We have encouraged organic farming in some states, which is a positive. The West is receptive to organic products, so that needs to be the next big push. Agriculture is not something we can escape from, simply because employment intensity of other sectors is not that high. Moreover, with AI and robotics coming in, we will not be able to absorb too many people in manufacturing. As I pointed out earlier, startups that help raise productivity and production levels across sectors are the need of the hour. IT-enabled digital startups will drive the next wave of growth in my view. My concern is whether we can broadbase our startup business models and take them to the real economy, rather than just market making. Some agri-startups are trying to cut out the middlemen and they need to be encouraged. But we need a lot of deep tech startups to help in adoption of drip irrigation, improved agricultural inputs and techniques. They can also play a key role in pivotal areas of education and health. While Byju’s is expanding fast, will it be able to bring education and skills to India’s masses in an effective & relevant fashion? Finally, development is about much more than economic growth. We need to ensure that in our pre-occupation with economic outcomes, we do not neglect environmental sustainability and cultural progress. The Indian dream need not be a replica of the American dream.
January 2020 • India Business & Trade | 17
20/20 FORESIGHT
Time to get bigger and bolder India has grown its merchandise export share to emerging markets and increased the share of hi-tech products. But it has a lot of catching up to do.
F
rom 2001 to 2018, India’s merchandise exports surged from US$ 43.8 billion to US$ 323 billion, growing at a CAGR of 12.2% per annum. Several factors have played an important role in the recent expansion of exports including the growing integration of economies, and increasing contribution of trade to development. Trade-driven globalization is also manifested in the changing geography of the world economy today. Its key features include the emergence of a dynamic South as an additional (to the North) path for world trade and new investment, and an expansion in South-South trade in goods, services and commodities. Share of emerging markets in global trade increased from 38% 20 years ago to 63% in 2017 (Bloomberg). India’s share of trade with emerging markets has increased to 59% of total trade in 2017, from 36.5% in 2002. OFF THE BEATEN PATH Evolution of Indian exports has not followed a “textbook” or “gradual” pattern of most economies. It mirrors the dichotomy in the Indian economy, a well-integrated,
technologically advanced services sector, exports of high technology & high-value added services, and a relatively lacklustre manufacturing sector exporting low-tech & lowvalue products. The share of manufacturing exports and their level of overall value content is still low compared to its peers, especially in Asia. There is still much room to converge with other EMs in manufacturing quality and complexity. Exports from India to Middle East have grown rapidly in the last two decades with a growth rate of over 15%, though some of these exports may be re-routed to other countries. Also, exports to Latin America are growing at a healthy rate of 17% over the last two decades, but the
INDIA’S SHARE OF MANUFACTURING EXPORTS AND LEVEL OF OVERALL VALUE CONTENT IS STILL LOWER THAN PEERS, ESPECIALLY IN ASIA
18 | India Business & Trade • January 2020
share remains small. The share of Middle East and North Africa has grown over 5% points over the last decade to over 20% of India’s total merchandise exports. Similarly, Emerging Asia also accounts for a rising share of India’s merchandise trade at almost 20%. SHIFTING GEARS India’s merchandise exports have surged the highest towards LDCs, with growth at 16% followed by developing economies at 14% and developed with just over 10%. Most fast growing economies in the last two decades have experienced rapid proliferation in the share of manufacturing exports. For example, in 2018, manufacturing exports accounted for more than 80% of total merchandise exports in China, almost double the share during 1980s. Indian exports have transformed to a lesser extent. The share of manufacturing in total merchandise exports has increased to 60% in 2018 from 36% in 1990s (pre-liberalisation period). However, the high reliance on resourcebased and primary products exports remains a matter of concern. Primary products account
INTERNATIONAL TRADE
for almost 35% of merchandise exports. Agricultural products like cotton, rice, tea, bovine meat and spices dominate primary exports. automobiles, pharma, electronics & engineering goods, precious stones & iron ore dominate the resource & value-added export baskets. In terms of technological content, the share of high-tech and mediumtech manufacturing exports in total manufacturing exports has increased globally, with a particularly large increase in China. India is no exception. Within manufacturing exports, there is a clear shift away from traditional exports, such as textiles, gems and leather products, towards high-tech and medium-tech manufacturing products, such as engineering goods. However, the share of high-tech and medium-tech manufacturing exports in total goods exports is substantially lower when compared to China or other EMs. Resourcebased production and low-tech manufacturing still dominate the export basket. Manufactured machinery accounts for almost 10% of India’s merchandise exports, while textile and garments account for over 15%. ROAD AHEAD In the medium-term, India has immense potential to diversify by concentrating on value addition in sectors closely related to its current capabilities. For example, in addition to manufacturing auto components, it can diversify into high-quality & export-oriented automotive products. For more complex exports, India should leverage existing information networks, technology, and financial channels. Ongoing transformation would help growth through reallocation of resources to more productive sectors and productivity gains in specialized sectors. Even though exports to emerging and developing economies have increased, the potential to expand them further is substantial. India can also benefit by increasing intraregional trade integration.
INDIA’S EXPORTS TO DIFFERENT ECONOMIC GROUPINGS 250 200 150 100 50 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 India’s exports to developed market economies
India’s exports to developing market economies
India’s exports to LDCs
Source: ITC Trade Map, figures in US$ billion
Although protectionism limits the potential upside in exports that India can expect, it should leverage international trade as a tool to both improve its competitiveness and manage its high trade deficit. In the more recent past, India has already set an example by reducing its value imports of mobile devices HIGH GROWTH EXPORT SECTORS Product
Exports growth
Refined/processed petroleum oil
20.05%
Bovine meat
21.21%
Unwrought aluminium
20.10%
Automobiles
26.14%
Motorcycles and mopeds
21.36%
Bedlinen and kitchen/toilet linen
1.51%
Ferro alloys
24.94%
Tractors
21.21%
Cellular for wireless networks
34.71%
Transmission shafts 22.16% Cyclic hydrocarbons
21.95%
Turbojets and turbopropellers
28.01%
Cotton
34.05%
Source: ITC Trade Map; products with export growth > 20% during 2001-18
by 57% between 2016-17 and 2018-19. But not all imports are bad, as Prof Manoj Pant, Director, IIFT, comments, “For one, it should be recognized that increased exports also entail increased imports. Hence, one needs to avoid protective tendencies as reduced imports could also reduce exports. Focus should be on promoting a value chain as a whole rather than only exports.” Promoting ties in transfer of know-how, and technologies from advanced economies will help India catch up with global technology and quality. In light of past experience on free trade agreements, India must only take up deals that do not overly burden its domestic enterprise, and also provide sufficient opportunities to enhance exports. To realize the benefits of international trade, India will need to continue with trade liberalization policy to reduce at- and behindthe-border costs, which remain high relative to its peers. It will also require liberalizing FDI, creating an enabling environment for investment, and higher spending on hard & soft infrastructure to support future exports expansion. Furthermore, encouraging technical innovations by MSMEs and integrating the informal sector would not only boost exports, but also help create jobs and make overall growth more inclusive.
January 2020 • India Business & Trade | 19
20/20 FORESIGHT
Mid-flight course correction While India awaits the return of animal spirits of its private sector, the wisdom from the mistakes of the past decade must not be forgotten.
T
he global liquidity boom in the pre-Lehman era had a predictable impact on the sentiments of India Inc as well. India’s economy began to flirt with high growth rates of 9-10%. Corporate India was on a massive expansion spree fueled by stable capital markets and its private banking system – adding capacity, exploring new markets and sectors, and aggressively exploring inorganic growth opportunities. Big ticket M&A deals were par for the course, be it Kingfisher-Air Deccan; Jet AirwaysSahara Airlines; Tata-JLR; TataCorus, Hindalco-Novelis, Suzlon Energy-RE Power, etc. Media was awash with stories celebrating the rise of the Indian multinational, and how Indian companies were now being respected and even feared in other countries. In nominal terms, India’s investment to GDP ratio increased from 26% in FY 04 to 35% in FY 08. Both food and non-food credit to the industry had doubled from FY 2005 to FY 2008. Capital inflows also
reached around 9% of GDP in 2009. The party crashed with the Lehman-led recession in the global economy in 2008. Also, the cost of servicing debt increased as RBI resorted to monetary tightening to bring down inflation from double digit levels. The repo rate in fact increased from 4.75% in September 2009 to 8.5% in December 2011. Rupee depreciation from the low40s in FY08 to mid-60s by FY16 further impacted debt serviceability of India Inc. Although financial institutions tried to avoid the bullet by resorting to restructuring and evergreening of the loans, the RBI’s Asset
IN NOMINAL TERMS, INDIA’S INVESTMENT TO GDP RATIO ROSE FROM 26% IN FY 04 TO 35% IN FY 08, WHICH LED TO PILING UP OF MASSIVE DEBT
20 | India Business & Trade • January 2020
Quality Review from 2016 gave a clear indication of the extent to which India’s financial system was stretched. It found that nearly a dozen banks were unable to lend without making some ‘adjustments’ to their accounts. Bankruptcies like that of Jet Airways, Reliance Communications, Essar Steel and Jaypee Group along with scam stories of the likes of Vijay Mallya, Nirav Modi and Mehul Choksi further compounded the negative sentiment. Of course, the global slowdown, similar overleverage in other countries and the US-China trade war haven’t helped. The introduction of Insolvency and Bankruptcy Code, 2016, has been lauded as a game changer as it mandates time bound 180-day resolution of a bankruptcy process. However, a report by ICRA states that 59% of the 2,542 cases brought up are still ongoing in courts. Only around 15% of the concluded cases have led to a resolution plan while the rest have gone for liquidation. Average time of closure for those
INDIA INC
corporate insolvency resolution processes (CIRPs) is also at 374 days, higher than the mandated timeline of 330 days. In 2018, India’s leading infrastructure finance firm IL&FS began to default on its payments to lenders, triggering fears of India staring at a potential Lehman-like debacle in its backyard. It was sitting on a debt load of Rs 91,000 crore, out of which Rs 60,000 crore was at the project level and its debt-equity ratio reached 18.7. Problems in land acquisition and cost escalations led to untenable delays, thereby leading the lender to this situation. While the first decade of the 21st century was notable for the heightened exuberance of India Inc, the second decade was characterized by a lack of it. RBI’s report in May 2019 is quite revealing when it says that both animal spirits and business sentiments are missing since 2010-11. Aggregate cost of projects sanctioned by banks was at Rs 1,728 billion in 201718 compared to Rs 4,095 billion in 2009-10. According to RBI, a total capex of Rs 1,487 billion was estimated to have been incurred by the private corporate sector in 2017-18. Out of this, Rs 802 billion was from fresh sanctions
COST OF PROJECTS SANCTIONED BY BANKS/FIS 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
Source: RBI, figures in Rs billion
during the year. It also marked the seventh consecutive year of annual contraction in the capex plans of the private corporate sector. New project announcements have dropped alarmingly from Rs 20.86 trillion in 2014-15 to Rs 9.76 trillion in 2018-19. In this scenario, a return to the ‘animal spirits’ in the near future is of course far-fetched. The government has resorted to a number of measures like reduction in corporate tax rate, sanctioning Rs 4.47 lakh crore to NBFCs and HFCs, liquidity infusion in public sector banks, support for the beleaguered real
(Left to Right) Ratan Tata, Former Chairman, Tata Group, Anil Ambani, Chairman, Reliance ADA Group and Naresh Goyal, Founder and former Chairman, Jet Airways
NEW PROJECT ANNOUNCEMENTS HAVE DROPPED ALARMINGLY FROM RS 20.86 TRILLION IN 2014-15 TO RS 9.76 TRILLION IN 2018-19 estate sector and clearing dues of CPSEs. The RBI has cut interest rates for 6 consecutive times before holding it in December. But revival in private sector sentiment has proved to be elusive. The jury is still out on when that is likely to happen. But there are intrinsic factors to blame. The very fact that India Inc was in trigger happy mode right upto the Lehman crisis as big ticket M&As like Corus and Novelis indicate, shows that we were not at all prepared for that ‘black swan event’. Basic fundamentals of corporate prudence were neglected by India Inc resulting in overleverage and precipitating the present crisis. The next growth cycle would be far more sustainable if these critical lessons of that illogical gold rush are not forgotten. Thankfully, the simultaneous rise of startups provides hope for a better future. As economists point out, it’s time for innovation-led capitalism to take centre-stage, and rent-seeking capitalism to peter out.
January 2020 • India Business & Trade | 21
20/20 FORESIGHT
Fuelling new growth engines The services sector has contributed hugely to both GDP growth and containment of the trade deficit. But India should now work towards a more diversified services export basket.
W
hen India liberalized its economy in 1991, its services sector was the most well poised to benefit. Presence of a large educated and English-speaking population gave India a natural advantage in the sector. Government initiatives to liberalise various services sectors like telecom, IT, healthcare, banking and real estate along with rising external linkages have played a major role in the growth of services economy. Also, the sector was not as constrained in terms of infrastructure, and other bottlenecks as compared to manufacturing. Unlike China, which benefitted from mass migration of farm labour to the manufacturing sector, India has seen services take the chunk of GDP in the post-liberalisation era. Its share of GDP has grown from around 40.6% of GDP in 1990-91 to 54% in 2018-19. India’s services exports surged from US$ 16.7 billion in 2000 to US$ 205.10 billion in 2018, growing at a CAGR of 14.95%. Its share of global services
exports increased from 1.1% to 3.5% during the period. Further, the services sector has remained resolute to global headwinds, with India consistently retaining a strong trade surplus in the sector. The surplus grew from US$ 2.5 billion in 2000 to US$ 28.52 billion in 2018. Services have also garnered a lion’s share of around 18% of FDI in India between April 2000 to June 2018. One extremely positive aspect has been the growth of Global Capability Centres (GCCs for R&D) being set up by MNCs in India. The number of GCCs has grown from 981 in 2010 to 1,250 in 2019. These GCCs generated engineering and
SERVICES GROWTH WAS CATALYSED BY THE ICT REVOLUTION AS WELL AS GROWTH IN TECHNOLOGY, TRANSPORTABILITY AND TRADEABILITY
22 | India Business & Trade • January 2020
R&D revenue of US$ 15.7 billion in FY 2019. They are also a critical component of IP creation, as nearly 79% of US patents to investors in India went to individuals working in these centres. Rapid growth in services in the last two decades has been attributed to the information and communication technology (ICT) revolution of the mid-1990s and rapid growth in technology, transportability and tradeability that changed the nature, productivity and trade of services. Modern services are the fastest growing sector of the global economy, with the share of modern services export in total services export growing across borders. In India, modern services exports account for nearly 70% of total commercial services exports, compared to 35% in EMs and have been growing much faster than traditional services. India’s IT-BPM industry was estimated at US$ 177 billion in 2019 and is expected to grow to US$ 350 billion by 2025. In particular, computer service
SERVICES
exports are a major component of service exports from India, accounting for almost 65% of total service exports. Finance, travel, sea transport (freight), and several business services such as legal, accounting, management, public relations, architecture, engineering and technical services account for the remaining chunk of India’s services exports basket. The pervasiveness of the internet and the explosion of cloud-based communication have enabled information and related services to flow freely across borders. The challenge, on the other hand, has been the high dependence on the IT/ITeS sector when it comes to services exports. Telecom, computer and information services accounted for US$ 86.3 billion or 41.4% of India’s services exports. This sector is now coming under some stress due to the increasing resistance to Mode 4, particularly in the key markets like US, UK and Australia. Also, companies are working hard to adjust to the new paradigm of digital technologies, AI, cloud computing, etc, which entail future growth opportunities, but also short term risks and margin pressures. There is an urgent need to diversify and make other services count for more in the basket. Tourism is one good example,
where India has numerous attractions on paper – nature tourism, eco-tourism, cruise tourism, spiritual getaways, etc and also more World Heritage Tourism sites than many countries. Yet, foreign tourist arrivals are less than nations like Turkey, Singapore, Mexico and Thailand. Professor Pralok Gupta, Centre for WTO Studies, IIFT opines on the major reasons, “This can be attributed to macro- & microeconomic reasons like the rating of the country, its media perception as a travel destination, and the kind of marketing & facilities available.” Another case in point is healthcare. India has been able to attract good numbers of medical tourists over the years, as it offers quality medical services at a fraction of the cost. Yet, India can realise much more potential in Mode 1 and 2. Mode 3 (setting up facilities abroad) will be expensive and entail high risk, while Mode 4 is constrained by protectionist
THE TOURISM SECTOR ALONE SUPPORTED 42.6 MILLION JOBS IN INDIA IN 2018, WHICH IS PROJECTED TO REACH 52.3 MILLION JOBS BY 2028.
INDIA’S SERVICES TRADE
195.08
2016-17
2017-18 Exports
Imports
2018-19
142.02 89.24 52.78
0
126.06 81.94
50
117.52 77.56
100
95.67 67.45
150
163.12
200
208
250
2019-20*
Trade surplus
Source: Department of Commerce, figures in US$ billion, *Estimate for Apr-Nov, 2019
tendencies across the world. In Mode 1, it can expand its services through accreditation of online consultation, telediagnostics, medical transcription services, etc. Mode 2 can be expanded through easier visa processes, facilitative environment, pre and post check ups, etc. Moreover, India lags in terms of international accreditation of hospitals, which can open up our sector to more patients with medical insurance. So far, most treatments are taken by patients who can pay out of their pockets. The third service that is very crucial from the Mode 2 point of view is education. India currently has 45,000 international students, accounting for just 1% of global student mobility. Nepal is the highest contributor at 26.88% followed by Afghanistan (9.8%), Bangladesh (4.38%) and Sudan (4.02%). The government plans to take this number to 1.5 lakh to 2 lakh students by 2022 through its ‘Study in India’ programme. Unlike IT/ITeS, if India is able to make its mark in these services sectors via Mode 2, it can have a huge multiplier effect on employment. Tourism alone supported 42.6 million jobs in India in 2018, which is projected to reach 52.3 million jobs by 2028 according to the World Travel & Tourism Council. There are a number of other sectors where India carries tremendous potential like audiovisual content (also crucial for projection of India’s soft power), BFSI, sports, logistics, wellness, retail, and R&D. Negotiations on services carry high importance in trade talks. Mode 4 commitments were indeed as important a deal breaker in RCEP talks, as were apprehensions of a huge influx of imports from China. For countries to benefit from India’s consumer market, they should be ready to give access to Indian professionals. But as this route is currently constrained, Modes 1 and 2 are the key focus areas to diversify services exports for India.
January 2020 • India Business & Trade | 23
20/20 FORESIGHT
Keeping the promise intact Stability in tax laws, transparent dispute settlement & improvement in contract enforcement will boost India’s attractiveness to investors, who remain confident of its growth story.
W
hile India grapples with the current NPA crisis and the economy faces an acute liquidity crunch, stable foreign investment growth acts as a respite. It may cushion the economy from the current headwinds, since there is a very high correlation between FDI and economic development. FDI was introduced in 1991 under Foreign Exchange Management Act (FEMA) with a baseline of US$ 1 billion in 1990. Even before 1990s, foreign investment was allowed, but in a very restricted manner. For example, the industrial policy of 1965 allowed MNCs to venture through technical collaboration. India has emerged as the top destination of FDI inflows over the past 3 decades. According to DPIIT,
from April 2000 to June 2019, India received a cumulative of US$ 628.7 billion of FDI inflows. The highest FDI inflow that India received in an annual year was in 2014-15 amounting to US$ 73. 5 billion. Post 2012-13, FDI inflow has been increasing over the years, but no such trend exists in FPI inflows. The UNCTAD World Investment Report (2019) states that there
INDIA CROSSED CHINA IN CROSS-BORDER M&AS FOR THE FIRST TIME IN 2018, LED BY THE US$ 16 BILLION ACQUISITION OF 77% STAKE IN FLIPKART.
24 | India Business & Trade • January 2020
has been a decline in global FDI by 18%, i.e. US$ 1.3 trillion. Flows to developing countries remained stable, rising by 2%. Also, the share of developing countries in global FDI increased to 54%, which is a record. India is ranked 10th on the list of top FDI recipients in the world. However, all is not hunky dory, the World Investment Report mentions that the number of international investment agreement terminations continued to be on the rise. In 2018 alone, at least 24 terminations entered into effect. India is ranked second on this list. India crossed China in crossborder M&As for the first time in 2 decades in 2018, led by the US$ 16 billion acquisition of 77% stake in Flipkart by Walmart. But ironically, the e-commerce policy
INVESTMENT
restrictions introduced in late 2018 caught both Walmart and Amazon by surprise. The perception on the long-term impact of some new foreign investment policies (even as investors remain confident on India’s growth trajectory) led to a drop of 5 positions in India’s rank to 16 on the AT Kearney FDI Confidence Index 2019. India’s performance on the index has been weakening generally after consistently ranking among the top five during 2004-13. Stabilisation of the GST regime, Insolvency & Bankruptcy Code and the progress towards digitisation, on the other hand, can boost investor confidence in the coming years. The record on litigation vis-a-vis foreign investment remains mixed. The Vodafone case continues to haunt the investment story of India. The Tata Sons-Docomo case, in which Delhi High Court enforced the arbitral award by foreign court has boosted the confidence of investors that the Indian judicial system is in cognisance with the foreign arbitral award without any intervention/ alteration. However the fate of Cairn Energy is yet uncertain. As per the Ease of Doing Business Index 2019, India showed a tremendous progress to rank 63, but continues to rank poorly in ‘enforcing contracts’. Hence the preference of foreign investors for the international dispute settlement
FOREIGN INVESTORS PREFER INTERNATIONAL DISPUTE SETTLEMENT AS PENDENCY STILL CONSTRAINS INDIA’S JUDICIAL SYSTEM. body is concomitant, especially when pendency remains the biggest concern for India’s judicial system. In 2017, India terminated 58 bilateral investment treaties (BIT) with different nations. BIT is an agreement, which primarily intends to protect the interest of investor, investing in a foreign territory/asset, hence playing a key role in building investor confidence and conducive environment for investment. In 2015, the Model BIT was promulgated by the government, after facing series of investment claims by various companies. The revised Model BIT imposes a mandatory requirement of ‘exhaustion of local remedies’ for five years before resorting to an international forum, hence it is facing criticism from all quarters. The hiccups primarily centre on dispute settlement mechanism and policy uncertainty in general. Steady and continuous policy changes from 2017 to 2019 such as abolition of
foreign investment portfolio board, permitting 100% FDI under the automatic route in coal mining for open sale, allowing 100% FDI for insurance intermediaries and Real Estate Broking Services show that the government views FDI as an indispensable growth driver. The recently released National Digital Communications Policy and E-commerce policy reiterate focus on FDI in boosting growth in respective sectors. Over the years, India has been a major destination of foreign investment primarily because of its rapid economic growth and the thrust of the government towards attracting FDI through the liberalisation of more sectors, policy streamlining and improvement in ease of doing business climate. However, ensuring the stability of taxation laws, fast-track dispute settlement and speed of contract enforcement will go a long way in boosting investor confidence. Measures such as advance pricing agreements, India investment grid etc, which will bring in more policy stability and transparent tracking mechanism respectively are the most plausible ways to move forward in this direction. The next big step that the government should consider to boost investment attractiveness is to resolve the investors’ dispute settlement juggernaut.
FOREIGN INVESTMENT IN INDIA 7000
9000
6000
8000
5000
7000
4000
6000
3000
5000
2000
4000
1000
3000
0
2000
-1000 -2000
1000 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-082008-092009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Direct investment
Portfolio investment
0
Total
Source: RBI, figures in US$ million
January 2020 • India Business & Trade | 25
20/20 FORESIGHT
CITIUS, ALTIUS, FORTIUS… The startup ecosystem was undoubtedly the ‘X’ factor for India. There is a lot of expectation from startups now to drive innovation, generate employment & solve real economy problems.
Picture options – Sachin, Binny Bansal and Vijay Shekhar Sharma.
(Left to right) Sachin & Binny Bansal, Founders, Flipkart
Y
ear 2007 was when Tata was making its iconic blunder of acquiring Corus, a steel firm five times its size - a deal symbolic of the heightened exuberance and animal spirits that characterized India Inc. back then. But in hindsight, this was also the year for another landmark event in the history of Indian enterprise. In October 2007, two young Amazon executives – Sachin and Binny Bansal set up an e-commerce website they called Flipkart, India’s most iconic startup story till date. Flipkart was valued at US$ 21 billion when it was eventually acquired by Walmart in 2018. The success of the Bansals also inspired many a startup journey in this period. Flipkart was obviously not an isolated event, and an undercurrent of enterprise was building up steadily during the fag end of the previous century. Perhaps the spark was lit in the early 1980s with the likes of N R Narayana Murthy,
who set up Infosys with an initial investment of US$ 250 that he borrowed from his wife. After the Government of India took the momentous decision to progressively liberalise the country’s economy, businesses started witnessing high rates of growth. More top-notch professionals started sensing lucrative opportunities, leading by example and setting up their own ventures in the 1990s. Sanjeev Bikhchandani, Founder & Executive Vice Chairman, Info Edge India Ltd (of Naukri.com fame), and VSS Mani, founder of Justdial, were some notable examples. In the late 1990s, the internet economy started taking shape. Besides its promise of making the world smaller and bringing down barriers to information, the internet was a great leveller for business. In fact, the internet economy seemed to suit young startups much more than established incumbents. Like Sanjeev Bikhchandani,
26 | India Business & Trade • January 2020
Deep Kalra, Founder, Chairman and Group CEO, MakeMyTrip.com, got acquainted with the potential of the internet as an avenue for distribution while working at GE Capital and decided to set up the popular travel portal. In 1998, Vijay Shekhar Sharma, Founder & CEO, One97 & Paytm, refused to check in to US-bound flights welcoming Indian engineers to battle Y2K. He felt that since India had the indigenous talent, why not build software in India and sell it to the world? After the dotcom era came the era of e-commerce, as companies began to really understand and appreciate how to leverage the internet for business. Moreover, customers started progressively searching for products and transacting on the web. A major inflection point for e-commerce was in fact the launch of the website of Indian Railway Catering and Tourism Corporation Limited. Sachin and Binny Bansal started
STARTUP ECOSYSTEM
off with books to induce more trials since it was a low ticket item and they could keep the costs low with their exposure to technology. As they successfully scaled and diversified, a number of category specific e-commerce startups quickly sprung up in categories like food, fashion, jewellery, cars, insurance and real estate. The most significant game changer is the manner in which mobile phones and more specifically smartphones have penetrated the Indian market. The direct implication of this has been that a large majority of Indians have, or are about to access the internet for the first time on their mobile phones. A report by Kantar-IMRB in March 2019 estimated India’s internet users at 566 million, projected to reach 627 million by the end of the year. Around 97% of India’s netizens use mobile as one of the mediums. This has created new avenues of growth and spurred startups like InMobi, Ola, Zomato, Practo, UrbanClap, BigBasket, Pepperfry and hotels. These startups have been fueled by several other factors – increasing affinity towards entrepreneurship, potential of the Indian market, globalization and the resulting interface with other ecosystemes (particularly Silicon Valley), rising confidence towards startup funding and facilitating policies. According to the NASSCOMZinnov Startup Report 2019, the ecosystem added around 1,300 startups in 2019, taking the total to 8,900 tech startups. India ranks third both in the number of startups and unicorns. The aggregation space has definitely been the beehive for startup innovation. The top ten unicorns of India as on date include 6 aggregators, two fintech firms and one edtech firm. IVCA estimates that around US$ 10 billion was raised by Indiafocussed funds between 2014 and 2018. Investments by VCs have grown by four times during the period, and number of deals increased from 130 in 2013 to 270
TOP 10 INDIAN UNICORNS Company
Valuation (US$ billion)
Sector
One97 Communications
16
Fintech
Oyo Rooms
10
Travel
Snapdeal
7
E-commerce & direct-to-consumer
Ola Cabs
6.3
Auto and transportation
Byju's
5.75
Edtech
Swiggy
3.3
Supply chain, logistics & delivery
Udaan
2.3
Supply chain, logistics & delivery
Zomato
2.18
Internet software and services
ReNew Power
2
Other
BillDesk
1.8
Fintech Source: CB Insights
in 2017. Besids value creation, startups have a potentially huge role to play in employment generation. In 2018, they accounted for 2.64% of the total jobs created in India and are projected to have generated 200,000- 250,000 jobs in 2019. There are rising expectations on the role that startups can play in the real economy. India needs more stories like Delhivery (logistics), Vortex (solar ATMs) and Ather Energy (electric mobility). With proliferation of Aadhaar, opening of bank accounts and increasing biometric availability, reaching out to millions of customers has never been simpler. Startups are more amenable to innovation and better suited to tap this market. A welcome trend is that of well established corporates engaging with startups to bring greater innovative capabilities in their own DNA. This could be pivotal for India as it seeks to move ahead of the curve in areas like AI
WELL ESTABLISHED CORPORATES ARE NOW ENGAGING WITH STARTUPS TO BRING IN GREATER INNOVATIVE CAPABILITIES IN THEIR OWN DNA
and machine learning. The government can further help in the maturing of this ecosystem. Prof Anand Nandkumar, Research Director, Center for Innovation and Entrepreneurship, Indian School of Business, opines, “Simplifying tax laws to make them more investor friendly is certainly one of the aspects, if we want our startup ecosystem to evolve in such a way that we are creating these global blockbusters. (Also) The current tax rate is still high for startups – if a startup is making US$ 100,000 of profit, US$ 30,000 is still a very big deal, if you consider neighbours like Singapore, where the maximum marginal tax rate is 17% and you start as low as 8.5%.” Also, efforts should be made to address bottlenecks, as Prof D. Tripati Rao, IIM Lucknow, explains, “Removing procedural delays helps the supply side, be it getting clearance to purchase land, registering property, electricity and water connections, environmental clearances, permission to set up a factory and pollution clearance. We should move at a faster pace, so that a business or company can start off without much effort and procedural hassles.” This will also enable smoother flow of investments at every stage of the growth process and unlock far greater and ‘real’ value for the startup economy.
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Feedforward effects of a robust startup ecosystem are tremendous IBT: What have been the main catalysts fueling the startup ecosystem in India over the past 10 years? Deep Kalra: The past decade has been the real shining period for the Indian startup ecosystem. Growth has been driven by a combination of macro and micro factors that have played an instrumental role in placing India as the third largest startup ecosystem, globally. • Rising disposable income and purchasing power, increased usage of internet and smartphones, improved digital literacy and adoption of digital payments are some of the many factors that helped B2C-focused startups thrive and grow in this dynamic market. • Presence of a robust infrastructure of incubators and accelerators, angel investors, venture capitalists, and also the entry of global investors that are providing access to external capital – has further lent support to the progressive phase of startups in India in this period. • In the recent years, corporates, too, have further fueled growth by investing and partnering with techrich startups for open innovation – an opportunity for enabling collective growth for both the corporate and the startup. • Last but not the least, the country’s pro-activeness in inculcating and supporting a culture of entrepreneurship. Since 2014, startups founders have been actively engaging and collaborating with their peers in the US, China and Japan, and this has further helped them in driving synergies and subsequent growth through learning. IBT: How has the startup ecosystem been instrumental in driving growth, dynamism and greater competitiveness in the Indian
Deep Kalra, Founder & Group CEO, MakeMyTrip, feels startups have driven economies of scale, standardization & bottom line growth for offline retailers & small businesses. economy? Deep Kalra: There is no doubt that startups play an instrumental role in driving economic growth of any country. The feedforward effects of a robust startup ecosystem are tremendous and far reaching – be it generating new employment opportunities, improving inflow of capital and liquidity in the economy, empowering people with wider choices of products and services, among others. Moreover, in India, startups have been one of the key enablers in bringing technology into the lives of masses by offering solutions in FMCG, food, healthcare, finance, education, travel and infrastructure etc; thereby creating significant growth opportunities for businesses across the wider ecosystem. In the coming years, traditional businesses across tiers will benefit from increased spending by tech startups that focus on solutions for the logistics,
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warehousing and infrastructure sectors. Another area where Indian startups continue to contribute significantly is by creating an environment of growth for MSMEs and SMBs - by enhancing their geographic reach, improving their marketing strategies and assisting them to serve their customers better. From ride hailing to accommodation services; from hyperlocal to e-commerce services, startups have been successful in driving economies of scale, standardization and bottom line growth for offline retailers and small businesses across sectors. Growth of the startup ecosystem is a promise of an all-inclusive growth for large and small businesses across sectors, on one hand. And on the other, it has also enabled the presence of wider choices and the access to enhanced products and services to customers. IBT: How is this ecosystem expected to evolve in the next 10 years, and what role will it play in the Indian economy? Deep Kalra: We have already entered the next phase of growth in the startup ecosystem. In the next few years, startups catering to the B2C and B2B segments will be seen focusing on innovation, enhancing the product or service experience of the customer and most importantly, investing in disruption for the next phase of growth.
GROWTH OF THE STARTUP ECOSYSTEM IS A PROMISE OF ALLINCLUSIVE GROWTH FOR LARGE AND SMALL BUSINESSES ACROSS SECTORS
DEEP KALRA
At present, we are home to the highest number of active internet users, globally, who engage with and consume tons of data on entertainment, research and social media etc., on a daily basis. In the next phase, B2C focused startups will be seen converting these engagement layers into real transactions; influencing customers to close the entire purchase lifecycle, online. And, one of the factors that will drive this conversion is access to data-driven personalized services. By empowering customers with choices mapped against their profile, buying behavior, previous purchase history and current searches–startups will be able to cross-sell and up-sell for growth. On the technology front, players will continue to experiment and innovate with voice, chat bots and other Natural Language Processing (NLP) and Artificial Intelligence solutions; with a promise of taking the overall shopping experience a notch higher. On the B2B front, investors will actively place their bet on technology-focused startups such as 3D printing, robotics, SaaS and PaaS focused product companies. IBT: India has been criticised as being a laggard in terms of innovation. How are startups faring in their endeavour to lead the curve on innovation? Please cite some examples. Deep Kalra: It will be unfair to say that India lags in terms of innovation. Over the past decade, innovation has been led by startups in the consumer technology domain. The first wave of B2C startups was led by companies in the travel and the e-commerce space and the second wave, which started about half a decade ago, has been driven by startups that focus on mobility, financial and hyperlocal services among others. Flipkart, Paytm, Swiggy, Bjyu and Ola are some of the companies that are leading by example. While some of
these have been built on globally tested models, their success can be purely attributed to their industry and market expertise, consumer understanding, investment in relevant technology solutions and most importantly, localizing global solutions for Indian customers – no one size fits all! Today, we are home to some of the best home-grown enterpriselevel or B2B startups, who have proved their mettle on the global scale as well. These include InMobi, Zoho, Freshworks, BillDesk, Udaan, GreyOrange, Rivigo, Delhivery – and the list continues to grow! Innovation has been at the core of various successful startups in India, however, there is a long way to go before we become the focal point for path-breaking innovations across product-oriented and serviceoriented sectors. IBT: A number of Indian startups have prioritised growth over
AS MORE INTERNET BUSINESSES IN INDIA START TAKING ROOT, DISCOUNTS WILL GIVE WAY TO MORE SUSTAINABLE WAYS OF ACHIEVING GROWTH
profitability. Do you see this trend now changing with the benefit of experience? Please elaborate. Deep Kalra: Startups have always dealt with a healthy tension of finding the right balance between growth and profitability. Establishing and running a startup and eventually taking it to the path of success is not about chasing numbers but about prioritizing and investing in strategies that promise to enhance the product or service experience of the customer. While the model may look simple but online marketplaces remain extremely difficult to build. Entrepreneurs struggle with the chicken and egg problem: to attain a critical mass of buyers, you need a critical mass of suppliers—but to attract suppliers, you need a lot of buyers. This challenge has indeed botched up many a marketplace. But once a marketplace reaches a critical inflection point, network effects kick in and growth follows an exponential, rather than linear, trajectory. As more and more internet businesses in India start taking root, discounts that served as an important way to induce trial and lure consumers to move from offline to online will give way to more sustainable ways of achieving growth. We shouldn’t forget that the current App economy has been in existence for just 10 years and has in fact touched India much later. IBT: Which are the potential sectors in India for startups to emerge in the coming years? What can be done by all stakeholders to facilitate this? Deep Kalra: The next phase of the Indian startup industry will be driven by companies, who focus on solving everyday problems of the consumers and converting scalable ideas into technologyenabled innovations for the benefit of the masses. In the coming years, education, healthcare and agriculture – are the three potential sectors that will draw the interest of home-grown startups.
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Why should there be Googles, when we celebrate the likes of Infosys? IBT: What have been the main catalysts fueling India’s startup ecosystem over the past decade? Prof Anand Nandkumar: The first big reason appears to be the fact that the seeds of the startup ecosystem were sowed from the evolution of the IT industry itself. Most startups are trying to solve problems idiosyncratic to India using technology as a base. So the first catalyst was the building up of capability on the technological front. This includes a number of factors that influenced the rise of the IT industry itself. So it includes the contribution of the engineering colleges, especially private ones in many parts of India. The second factor was the advent of a lot of multinationals. These were in some ways seeding the systematic thought processes around solving some of these efficiency-related issues or service delivery kind of issues. People who fundamentally had the technological expertise and were in some ways thinking systematically about solving these problems idiosyncratic to India, eventually went out and did their own startups. In many cases, successful IT companies nurtured the startups by themselves. IBT: How has the startup ecosystem been instrumental in driving growth, dynamism and greater competitiveness in the Indian economy? Prof. Anand Nandkumar: As we speak, there aren’t any systematic empirical studies that tell you the contribution of the startup ecosystem to the economy. But there are lots of possibilities and lots of pockets where they have delivered. One clear example is employment generation. You have these agents that come to deliver your packets and clearly that has
Prof Anand Nandkumar, Research Director, Center for Innovation & Entrepreneurship, Indian School of Business, feels making value judgements on Indian startups’ innovation capabilities is unnecessary become a very flourishing industry. If you look at the advent of the gig economy, it was completely kick-started by these startups. With the gig economy-based taxi operators for example, many people have become entrepreneurs from just being chauffeurs. So it has effectively created the second tier of small and medium entrepreneurs, who now do not want to work for somebody. What this could also do is to solve a very difficult problem that we have been facing. On the agricultural front for instance if they could get into large-scale procurement of groceries, etc, they may actually help in price stabilisation. If they were creating large supply chains, they would eventually have the ability to move these commodities across India, which we have often struggled to do.
30 | India Business & Trade • January 2020
However, this has not happened yet. But it could offer the price stability that particularly small farmers appear to need. So it has the potential to contribute in other ways, but we have to decide whether we are willing to give these startups the scale benefits or not. When we say that big traders are resorting to unfair trade practices it is essentially becoming a story of small vs large. However, there are benefits of being large and of course detriments of having few large players in the market. So this needs to be thought through carefully. IBT: Nandan Nilekani recently said that India’s third wave of innovation could produce a tech titan like Google. What is your perspective and how are startups faring on innovation? Prof. Anand Nandkumar: There are reasons why certain countries are better at certain kinds of innovation. Who is to say our IT service delivery model is not that innovative? I do not feel the need to be very religious about product vs process innovation. In fact, our forte has been the latter since we are surrounded by lots of human capital and that is a problem we need to solve. On whether startups are innovative, you bet they are. They are solving problems that are relevant to the country, creating value and consuming a part of that value. Sure, there are no Googles from India, but why should there be, when we celebrated the likes of Infosys? I do not feel the need for making value judgments about what these people are doing. To judge innovation based on factors like it is product or process, services or something else – as long as there is value being created and appropriated, I don’t see a problem.
CONSUMPTION
Liberating the bird of gold India’s consumption story has been arguably the key highlight of its attractiveness for global businesses post-2000. But it now needs a shot in the arm.
A
s a consequence of rising economic growth and better opportunities post-1991, growth in real per capita income accelerated from 3.2% in the 1980s to 5.4% in 2000s, coupled with a drop in poverty ratio from 45% in 1993-94 to 32% in 2009-10. In this post-liberalization phase, the average Indian consumer has also witnessed an exponential growth in availability of options across categories. A plethora of foreign brands established their presence in the country during this phase. Be it major products like television sets or commodities of mass consumption like handbags, a number of foreign brands like Sony, Samsung, LG, Lacoste, Chanel, Michael Kors, Versace, H&M and Zara made inroads into the Indian market. There has been a generational shift of sorts in consumption behaviour of masses in this period. For example, the generational cohorts born during the 1970s and 1980s still carry with them memories of a more modest era when options
were fewer and thrift was a greater virtue. In contrast, people born through the late 1980s to the 2000s have grown up in a more open and confident India. These nearly 700 million individuals are always on the move and are driven by the zeal to have a materially better life, backed by the ability to spend. From the 1980s when a colour TV was a luxury for a chosen few to the present day, when people are known to change their LED TVs every 4-5 years, the transformation in the dynamics of India’s consumer market is indeed stark. Another significant development in this period was the advent of
FROM THE 1980S WHEN A COLOUR TV WAS A LUXURY FOR A CHOSEN FEW, INDIANS ARE NOW KNOWN TO CHANGE LED TVS IN 4-5 YEARS
internet and the consequent rise of e-commerce as a retail platform. Mobile-based payment models have acquired greater acceptance amongst youngsters in crowded cities, providing brands with unprecedented avenues to reach their customers. India’s consumer market has literally been a focal attraction for global businesses in the last two decades. McKinsey Global Institute (May 2007) envisaged India as a ‘Bird of Gold’, owing to the huge potential of its consumer market. The report projected that “If India continues on its current high growth path, incomes will almost triple over the next two decades and the country will become the world’s fifth–largest consumer market by 2025”. It also estimated that over 291 million people will move from poverty to a more sustainable life, and India’s middle class will swell by more than ten times from 50 million to 583 million people. There have been contradicting reports about the actual size of
January 2020 • India Business & Trade | 31
20/20 FORESIGHT
India’s middle class. The Economist carried an article wondering whether India’s middle class is actually as large and lucrative as it appears. Using NCAER’s definition of a per day income of US$ 10, the publication cites a Paris School of Economics study to point out that India’s middle class is actually just around 78 million. But going by India’s poverty line, economists Sandhya Krishnan and Neeraj Hatekar argue that India’s middle class is actually the segment earning US$ 2-10 a day at 1993 PPP. This estimate pegs the middle class at 604.3 million in India. While India’s purchasing power is not strictly comparable to the Western world or even a number of Asian countries, a number of brands have struck gold in India, even as several others have failed. Given India’s unique combination of preferences, aspirations and prudence, companies need to look beyond their preset assumptions and rules of doing business. The success of Chinese mobile handset brands in India is a case in point. The other concern of whether Indians are actually getting as rich as, say the Chinese, and will match its consumption spends in the near future is more interesting. According to the World Economic Forum, domestic consumption, which powers 60% of the GDP today, is expected to grow into a US$ 6 trillion opportunity by 2030.
Rama Bijapurkar Leading market strategy consultant and the author of A Never-Before World: Tracking the Evolution of Consumer India
“THE RISE OF DIGITAL COMFORT AND THE DIGITAL WAY OF DOING THINGS HAS BEEN A BIG SHIFT OF THIS LAST DECADE. CONSUMPTION COMFORT AND A STEADY DESIRE TO CONSUME IS ALSO A HALLMARK OF THESE YEARS. FROM 1991 ONWARDS, INDIAN CONSUMERS HAVE BECOME INCREASINGLY AGGRESSIVE IN THEIR EXPECTATIONS OF PRICE-PERFORMANCE THAT SUPPLIERS GIVE THEM (EXPECTATIONS INTERESTINGLY SHAPED BY THE SUPPLIERS THEMSELVES). COMFORT WITH BORROWING TO SPEND IS ALSO INCREASED THOUGH STILL PRUDENT.”
32 | India Business & Trade • January 2020
This vision is anchored in growth of upper-middle income and high income brackets. But fears on the sustainability of market growth seem to have only strengthened with the recent slowdown. India is not known as a creditdriven economy. But as the Economic Survey 2018-19 pointed out, household savings rates have been on a surprising decline from 23.6% in FY 2012 to 16.3% in FY 2018. On the other hand, according to the RBI, personal loans surged by 89% to Rs 19.1 lakh crore from 2013-14 to 2017-18, while private consumption increased by only 53%. So marketers across the board are wondering why the consumption story has got weaker. The rural market is getting less attractive due to declining agricultural yields, and requires measures to improve farm outcomes and provide nonfarm jobs. Boosting infrastructure development and supporting programmes like MNREGA would be useful steps. Urban demand is also weak for discretionary expenditure such as auto, consumer durables, houses, etc. Revival of the consumption cycle in the short term can only be possible with revival of investment. This would help boost incomes, provide jobs and bring back confidence. Despite having low savings rates, Indian consumers are facing the brunt of low discretionary income for consumption. Low employment rates are one reason, but there are other factors eating into household budgets, like private education and healthcare expenses. Moreover, the long list of stuck real estate projects has constrained lakhs of homebuyers, possibly scaring millions more. Programmes like Ayushman Bharat could help put more money in the hands of Indians, and the government is also taking welcome steps to tackle the realty crisis. In the long run, affordable access to high quality services in areas like healthcare and education would also prove fruitful in terms of keeping the Indian consumption story going.
CONSUMPTION
Indian companies will create the power of their own brands IBT: India’s consumer market has been a major attraction for multinational companies across the world in the past two decades. How has the market performed vis-à-vis its projected potential? Dr. Amit Kapoor (AK): Indian market has performed fairly well over a period of time. In fact, the growth story of the Indian market has been driven by consumption itself. People with higher disposable incomes, as they were moving out of poverty, were the driving force behind this. It is only right now that we are seeing certain set of skirmishes in the economy. However, over a period of time, the potential remains fairly high. At the end of the day, it is all about the population that we have; there’s something very unique about it – because of the lack of services/ products, the market is ready for an uptick because people are willing to pay for better products and services. Therefore, the sophistication of demand has increased in India. For instance, people who wanted tumble top washing machines now want new options like front loading. So, the consumer is becoming much more aware and will continue to get even more sophisticated with time. IBT: What have been the most interesting evolutions in Indian consumer behavior in these decades? AK: The last 20 years have been the most significant phase in the history of marketing because it changed a lot! Until about ’94-’96, we did not have the internet; so, the information that we used to have about products was very limited. Even when we got this information, there was a delayed effect; I was not even aware about the prices. But now, with the advent of the internet, the information asymmetry has
Dr. Amit Kapoor, Chair, Institute for Competitiveness opines that while Indian consumers may prefer international brands, the market will witness the rise of more and more homegrown brands in future. reduced. The consumer has become much more aware. So, today, I know what product is getting launched where, what is its price, what are its features, etc. In fact, if you look at the mobile phone industry, India has probably one of the most interesting markets: if you talk about any category of persons, people change their phones every one year or so. Today, India has around 400 million people with smartphones. There are also those people who own feature phones. Not every person is super rich. We have the middle class that wants to switch its phone. If you look at a Rs 80,000 phone and a relatively less expensive smartphone, they both offer platforms like WhatsApp, Twitter, Facebook, news, etc. So, people are able to use these services. In fact, there has been a democratization of services that we are seeing.
IBT: How is the Indian consumer different and similar to the rest of the world today? AK: India has a very unique market because Indians are not price conscious; they’re value conscious. They want the best out of the possible price that they pay. For example, if the consumer can get a TV for say Rs 80,000 of a lesser known brand and he’s getting a Sony TV for Rs 2-3 lakh, he’ll ask why should I pay so much? So, the Indian consumer is very discerning & wants the best out of his investment. IBT: How has the Indian consumer’s approach towards homegrown brands evolved? AK: Service providers or manufacturers are now understanding that there is a potential for Indian brands. Sula Wines is a great example. It is only a matter of time when it will become the best in class or they’ll be able to charge more as the other sophisticated wines. Today, the consumer is willing to look at Indian products. There is also another trend that you have Indian companies that sell products with international names. So, it seems to marketers that Indian consumers have a fetish for foreign brands. There are numerous Indian brands which sound foreign, but are Indian. At the end of the day, Indian companies are going to create the power of their own brands. Let me give you an example. There’s a product called gamcha - a scarves brand which is manufactured in Bhagalpur but it’s being sold all over Europe. It is a high end brand for which people are willing to pay because of its handcrafted products. We will see the rise of more & more Indian brands as we go along.
January 2020 • India Business & Trade | 33
D TRIPATI RAO
Investors look for sustained ROCE in medium & long run Prof D Tripati Rao, IIM Lucknow, believes that speed of execution and implementation of factor market reforms is crucial to the success of Make in India. IBT: What are the major driving factors of India’s improved rankings in the World Bank’s ‘Ease of Doing Business Index’? Prof D. Tripati Rao: India’s significant jump of 14 ranks in a year is driven by significant improvement in 7 out of 10 factors on which ease of doing business is measured. The four big areas of improvement since 2018 have been resolving insolvency, dealing with construction permits (possibility of submitting building plans in advance), trading across borders and starting a new business (new form for business incorporation that combines Permanent Account Number with TAN). There has also been an improvement in paying taxes online (post-GST) and getting electricity. Basically, the model insolvency regime that we passed in
2016, which was a comprehensive strategy to reform corporate law, led to a gradual increase in the number of reorganisations, despite some of the implementation challenges we still have and where India still scores a low ranking. As a result, overall recovery rate for creditors has jumped from 26.5 to 71.6 cents on the dollar. By far, India is considered one of the best performers in South Asia. It is also faring well with respect to OECD high-income economies. IBT: The index looks just at the cities of New Delhi and Mumbai. How have all stakeholders, including states played a role? Prof D. Tripati Rao: There are three layers in the reform process – reforms at central level, meso (state) level and micro reforms.
34 | India Business & Trade • January 2020
The major challenge in building the bridge between macro level reforms and micro reforms is of the state level. If you look at the 10 parameters where India has improved its performance, you can observe that without the support of states, most of the yardsticks would not have been improved upon. Of late, states are also coming forward in embracing these reforms, for instance, when it pertains to starting a business, getting construction permits and electricity, registering property, getting credit, protecting the minority investor, paying taxes, etc. Except for the first, all others are where central government, regulator and infrastructure play a greater role. The idea that the central government is keen to bring out an inter-state competition for contributing to overall efforts – this of course will be very welcoming. But of course the initiative is yet to take off effectively! IBT: What should the government do further to attract business investment given the current economic environment? Prof D. Tripati Rao: There is an ongoing debate on whether India’s recent slowdown has been cyclical or structural. If you look at the period from the Great Depression as well as recent experiences across the world, there are three general signs of a slowdown. One is of rising unemployment level. The second is wage stagnation, and in India it is rural wage stagnation. The third is significant fall in consumer durable expenditure – a sign of low spending power and a result of depressed real income. In India, during the past couple of years, these three indicators are showing signs of stress. However, whether it is cyclical or a structural slowdown, or a cyclical slowdown turning into a structural slowdown continues to be a point of debate! While the earlier estimates on potential output show that we are still not into a structural slowdown, headline core sector as well as quarterly growth numbers are very bleak. Amidst geopolitical
uncertainty, a significant slowdown in exports growth, falling private final consumption expenditure, domestic investment is not picking up. Some of the recent measures by the government, including the cut in corporate taxes that makes India competitive with any Southeast Asian economy can come handy! But a lot of dynamic factors are at play in promoting investment. If you ask what attracts foreign or domestic investment, it is return on capital employed in mediumand long-run, which should be positive and sustained. For that you need to achieve productive efficiency, release of productive impulses through product and factor market reforms. India has seen a fair degree of reforms on product-market integration. But for various reasons, factor market reforms, factor market integration, seamless mobility of labour, and other inputs and resources have been literally tardy. Transparency in policy, intellectual property rights, decrease in the level of corruption, contract enforcement, stable tax regime would be important factors in attracting business investments. Besides cost competitiveness, availability of skilled labour force, significant improvement in business climate will also play an important role. Uncluttering and deregulating the market and strengthening the democracy, also contribute significantly in attracting FDI and business investment. We have made much headway in India’s macroeconomic policy – monetary, trade, foreign exchange policy, financial sector reforms and regulations; which has been crucial in attracting foreign investors. We need to carry out more reforms in terms of Ease of Doing Business; especially enforcement of contracts and initiating a new business. IBT: How is India faring on infrastructure, since that is a critical constraint for doing business? Prof D. Tripati Rao: Whenever we talk about trade competitiveness, most of the time, the myopic view has been about playing with
exchange rate. But I think more than the currency movement, structural bottlenecks and lack of improvement in productivity are real hindrances to India’s competitiveness. India’s share in world trade has not seen any significant improvement. But we are trying to improve from 1-2% to 5%. India is proposing around Rs. 100 lakh crore of investment in infrastructure in the coming years. The government plans to roll out big-ticket infrastructure investment and there has been an initiation through Bharatmala and Sagarmala programmes. Even historically when you look at growth of cities and civilization across Europe, there has been a good interlinking of rivers. The recent thinking is towards creating
THE RECENT THINKING IS TOWARDS ‘BLUE’ ECONOMY – INTERLINKING RIVER BEDS TO MASS-TRANSIT GOODS & SERVICES. BESIDES BEING COST-EFFECTIVE & BUSINESS FRIENDLY, IT WILL HELP DE-POPULATE SURFACE TRANSPORT
‘Blue’ Economy – interlinking of river beds to mass-transit goods and services. We have seen recent initiative to build river-bed corridor all along Ganges belt, from Benares to Allahabad to Kolkata. Another initiative is being taken for masstransit from Goa to Mumbai. Besides being cost-effective and business friendly, this will help de-populate traditional surface transport. IBT: How do you see the current credit squeeze in the banking sector, and its impact on ease of doing business in India? Prof D. Tripati Rao: If you look at institution-wise performance, I think the real sector – private and public – hasn’t fared that bad; besides being affected shortly by structural-
policy disruptions. It is only the financial sector, both public and private, where we have seen major stress. Last few years, financial disintermediation has happened. Credit multipliers have also slowed down and liquidity has tightened because of the “twin-balance” sheet problem, resulting in a legacy of non-performing assets. Especially for over one and half years, beginning with IL&FS, the NBFCs have come under major liquidity stress due to asset-liability maturity mismatch – both being caught in cyclical slowdown as well as critical operational risk failures; wherein the later need to be addressed through institutional reforms, which include tighter supervision as well as monitoring of balance-sheets. This has further led banks and NBFCs to cut down their lending to the commercial sector. In fact, there is a significant fall in credit flows as an annual average growth rate, which was more than 20% in the first decade of this century, has gone down to 10.6% in 2015-16. Last year, it was even below 10% at around 8.5%. This is a really a disturbing trend and will be a major roadblock in growth revival! Similarly, institutional credit to agriculture sector has decelerated. Therefore, you can see that the financing needs of the real sector are also being squeezed. Only lending to retail sector (personal loans) is steady. Large loans to capital-intensive industries account for a major proportion of NPAs. Large industries are the ones that have got it in return because of the credit squeeze. Credit finance, investment and consumption play an important role in sustaining demand. Therefore, the government, the RBI, and the regulators must take fast forward action in addressing the structural bottlenecks that are the reasons for rising NPAs, to ameliorate real sector from credit squeeze, and hence laying a foundation for a revival of the Indian economy at the earliest. (With inputs by Ms. Aastha Agarwal, PGP II student, IIM Lucknow)
January 2020 • India Business & Trade | 35
FOCUS SECTOR
Medical Devices: From misery to opportunity India needs to bridge the ecosystem gaps affecting its medical devices industry to counter its import dependence and cater to a growing domestic & global healthcare market. BY NIKHAAR GOGNA
A
ccording to Indian Tourism Statistics, 2018 report, the total number of inward medical tourists doubled in just three years to 2017. The report also states that around 22% of arrivals from West Asia were for medical purposes, followed by 15.7% from Africa. Ministry of Tourism projects that the country’s medical tourism industry could grow by 200% by 2020, touching US$ 9 billion. While the flocking of medical tourists might auger well for the Indian exchequer, all’s not well in India’s healthcare sector. One area with critical gaps is that of medical devices, as evidenced by the high import dependence. Valued at US$ 5.2 billion, the country’s medical devices and equipment industry contributes around 5% of India’s US$ 96.7 billion healthcare sector. Further, it has been noted
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in a recent report by the High Level Advisory Group constituted by the Minister of Commerce and Industry (2019) that the total import of medical devices is more than 75% of total medical device sales in India. While India is among the top 20 global medical devices markets, it is the 4th largest in Asia (after Japan, China & South Korea). Given that India has a large population (likely to reach 1,360 million in 2021), with a significant section of the elderly (share of aged population >65 years expected to increase to 6% of total population in India by 2021), there is a pressing need to invest in the nation’s medical device industry. Added to this is the alarming rate at which chronic diseases are likely to increase in India. According to estimates, non-communicable diseases like cardio vascular
diseases, cancer, diabetes, and others, are expected to comprise more than 75% of India’s disease burden by 2025. Health insurance (which grew at a CAGR of 22% from FY08 to FY15) will pay a critical role in helping patients battle their illness and enhance their spending power. All these factors reveal that India’s health industry, and hence the medical devices industry, needs to be well equipped to handle these challenges that await us. And in the case of India’s medical devices industry, reducing import dependence and becoming competent enough to manufacture the equipment will be instrumental in improving the health of not just the people, but the economy as well. However, in order to become a leading producer of medical devices, the sector must overcome the following challenges: Regulatory environment Ministry of Health and Family Welfare is in the process of putting in place a regulatory framework for medical devices. The government has recently announced its intention to treat all medical devices, be it an implant or an MRI machine as “drugs” under the Drugs and Cosmetics Act. There’s also a proposal to have a separate regulator under the Directorate General of Health Services to
IMPORT DEPENDENCE OF MEDICAL DEVICES SEGMENTS
90
83
80
67
70 60 50
60
52
40
50 30
30
35 24
20
16
10
10 0
62
Diagnostic Imaging
8
IV Others Consumables Diagnostics
Import dependency (%)
3
9
Dental Patient Orthopaedic & Prosthetics Products Aids
Share of overall medical devices market (%) Source: HLAG Report, Oct’19.
monitor the medical devices sector. To put things in perspective, the medical technology industry in India is regulated by more than 10 departments. For example, the National Pharmaceutical Pricing Authority (NPPA) under Department of Pharmaceuticals (DoP) looks into pricing regulations; while the Central Drugs Standard Control Organization under the Ministry of Health and Family Welfare monitors product safety and efficiency rules. A single regulatory authority will help maintain quality standards aligned with global best practices and thus
reduce treatment costs. However, industry leaders opine that medical devices are not drugs, and it would be a grave mistake to apply the same regulatory framework to regulate them. This attempt to deliberately retrofit medical devices into the Drugs and Cosmetics Act will lead to a toothless regulatory framework for devices in their view, as the Ministry cannot create new offences or penalties through its rule-making authority. It would also make it difficult to hold manufacturers of faulty medical devices accountable.
TOP SOURCES OF INDIA’S MEDICAL DEVICE IMPORTS
400 350 300 250 200 150 100 50 0
USA
China
Germany 2016
Japan
Singapore 2017
Netherlands
Republic of Korea 2018
Switzerland
China
France
Source: ITC Trade Map, Figures in US$ million for HS Code 9018
January 2020 • India Business & Trade | 37
I nverted duty structure India’s domestic medical device manufacturers’ are at a relative disadvantage as compared to other emerging market economies. One major reason is policy issues like nominal tariff protection and inverted duty structure (i.e., finished goods are cheaper to import than raw materials required for domestic manufacturing). As Gaurav Agarwal, MD, IITPL, tells IBT, “In the stent industry, there is a tax of 10% on import of components to India; while for an imported stents, there is 0% customs duty. This inverted duty structure is promoting imports rather than domestic production.” This policy is counterproductive to Make in India as a lot of Indian manufacturers have resorted to imports and re-exports of Chinese
products as Indian labelled medical devices. This does not buttress India’s image as a medical device manufacturer across the world. Moreover, it may also result in loss of credibility for Brand India, if overseas purchasers realise that what they’re paying extra for is not Indian, but (low quality) Chinese re-export. Further, given that most medical devices can be imported without regulatory checks is leading to the import of low cost, poor quality equipment. Promotion of R&D “At present, India does not have qualified homegrown laboratories for benchmarking our solutions and we are forced to outsource it to European/US Laboratories. The overall cost for regulatory
EXISTING & PROPOSED MEDICAL DEVICES CLUSTERS IN INDIA
HARYANA Boston Scientific Corp., Becton Dickinson India, Hindustan Syringes, Narang Medicals, Poly Medicure, BL Life Sciences
DELHI (NCR) Hindustan Syringes and Medical Device Mode Healthcare, amco, Boston Scientific Danaher Co.
GUJARAT 3M Co., Bayer AG, Meril Life Sciences, Envision Scientific, Invent Biomed, Sahajanand Medical Technologies MAHARASHTRA Johnson & Johnson, Smith & Nephew, Philips Healthcare, Siemens, Nipro Corp., Danaher Corp. Trivitron Healthcare, Remi Laboratories
KARNATAKA GE Healthcare, Biocon, Medived, Skanray, Bigtec Labs, Skanray Technologies, Prognosys Medical, Opto Circuits, Biorad Medisys, Vascular Concepts Confident Dental Equipments
TELANGANA St Jude Medical, Analysis Medical Devices, B Braun (y) Medtron (yd)
TAMIL NADU Roche, Trivitron Healthcare, Opto Circuits, Perfint Healthcare Cure Healthcare, Appaswami Associates, Phoenix Medical Systems, Schiller Source: Medical Device Manufacturing in India - A Sunrise, 2017
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testing and periodic maintenance of the certification is exorbitant, which in turn increases the total product development cost. Also, local certification must be given more importance or must be at par with international certification so that the customers’ mindsets to accept locally certified product will increase”, explains Nagavalli Goteti, Executive Director, Panacea Medical Technologies Pvt Ltd. Indian manufacturers of medical devices compete in terms of prices and the profit margins are too small to permit them to invest in R&D themselves. Industry insiders lament that the payment for government procurement of domestically manufactured devices happens only after the installation of the equipment, which is against the spirit of local manufacturing. In case of imported equipment, the government pays in advance. Further, in a bid to making different types of medical devices price competitive, Indian manufacturers are hardly thinking about developing the next generation of medical devices. IN PURSUIT OF INGENUITY In order give a boost to the sector, the government has taken a lot of steps in the right direction. For example, it has promoted the setting up of medical device parks and clusters in India. This will give a fillip to production of medical devices in the country and generate employment opportunities. It will also enable the provision of worldclass health services at affordable prices. The states of Andhra Pradesh, Telangana, Tamil Nadu and Kerala have been zeroed on for this purpose. Another positive development is that the government has asked states to consider doing away with the mandatory requirement of US and European regulatory certification for equipment to be purchased for state-run institutions and hospitals. This will help bring parity between domestic & international players. In tenders for procuring medical
POLICY IMPERATIVES TO BOOST INDIA’S MEDICAL DEVICES SECTOR
• Regulating all medical devices under a patients’ safety medical devices law to protect patients and aid responsible manufacturing. • Promoting the production of medical devices in India to address 80-90% import dependency by a predictive nominal tariff protection policy and correcting the inverted duty structure.
equipment, government hospitals and institutions usually choose products certified by US Food & Drug Administration, stamped with CE mark from the European Medical Device Directives or approved by India’s drug controller general. The government also approved 100% FDI in the medical devices sector under the automatic route, for brownfield as well as greenfield set-ups in December’14. The Drug Controller General of India launched the Materiovigilance Programme of India (MvPI) to monitor the safety of medical devices in the country. However, there is still a lot to be done to become a key player in the global medical device industry. In this regard, India could learn a couple of lessons from China, its next door neighbour. In 2014, the country’s National Medical Products Administration (NMPA) announced expedited regulatory approvals for devices that it deemed innovative. Since this policy’s inception, Chinese companies (and not MNCs)
have been its principal beneficiaries, accounting for over 90% of the 117 devices approved (as of January, 2018) under this expedited process. The policy also makes it a mandatory requirement to carry out clinical trials for Class 2 and 3 medical devices in China, thus mitigating the unfair advantage that MNCs enjoyed – they could sell devices in multiple markets while only submitting clinical data once. Finally, China intends to increase the domestic production to meet 50% of the country’s demand by 2020 and 70% by 2025. India should similarly focus on accessing critical gaps hampering its domestic manufacturing industry. Removal of the inverted duty structure, promoting R&D, preference to domestic brands in public procurement, financial support to startups, harmonisation of standards and an overarching regulatory framework catering to the unique facets of the industry will be key to achieving this goal.
• Build skill and capacity to expand research & development through education and certification. The government can also have a collaboration of these academic institutions with medical device companies to develop new medical technologies. • Bridge the gap between national & international standards by harmonising them. Indian-certified medical devices must gain recognition abroad. • Providing financial incentives for domestically manufactured/ innovative products. These could be designed for exporters of medical devices too. • Establishment of more medical device testing labs in the country. This will establish the credibility of the product by ensuring safety and efficacy of medical devices marketed in the country.
January 2020 • India Business & Trade | 39
We can repeat the success story of mobile phones IBT: What are the critical gaps in the ecosystem for India to become an innovation-driven global hub for medical devices? Mr. Rajiv Nath (RN): India definitely has the necessary ecosystem e.g. infrastructure, innovation, zeal for R&D to become the global hub for medical devices. However, some of the critical gaps to be filled are: • Need to regulate all medical devices under a Patients’ Safety Medical Devices Law to protect patients and aid responsible manufacturing. • Protect consumers from exploitatively high MRP in medical devices by rationalized price controls and aid ethical marketing. • Encourage employment and Make in India in medical devices and address 80-90% import dependency by a predictive nominal tariff protection policy, as done for mobile phones to ensure a vibrant domestic industry & competitiveness and price stability driven by competing domestic players. • Incentivize quality in healthcare products in public healthcare procurements by preferential pricing for Q1 e.g. ICMED (QCI’s Indian Certification for Medical Devices) instead of L1 (lowest price). Importers have been lobbying to be kept outside the purview of trade margin rationalization. By accepting their demand, the government would be doing a great disservice to the domestic industry. • Pro-active policy formulation to regulate devices differently from drugs should allow free market dynamics to keep regulations simple, protect consumers & incentivize Make in India. These are vital and strategic to meet the health-for-all National agenda of PM Modi and aligned to the Health Policy 2017, to make
Rajiv Nath, Founder and Forum Coordinator of AiMeD, tells IBT that there is a need to incentivize quality in healthcare products in public healthcare procurements by preferential pricing. quality healthcare accessible and affordable for common masses, to enable placing India among the top 5 medical devices manufacturing hubs worldwide and end the 8090% import dependence forced upon us with an ever increasing import bill of over Rs 38,837 crore. Pseudo manufacturing & unethical marketing is harming consumers and disallowing manufacturing to succeed in India. We can repeat the success story of mobile phones by replicating the same strategies. IBT: How can foreign firms be attracted to invest in the Indian medical devices sector? RN: Existing companies marketing their Products in India will be motivated to invest when they find their competition (with Factories in India) are having a competitive advantage. This can be achieved with a predictable tariff protection policy to protect manufacturers who put up factories in India and are also given a price preference in public health procurements.
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IBT: How do Indian medical devices companies fare internationally? What can be done to make them competitive? RN: The beleaguered medical devices industry is focusing on exports as they continue to lose market share to imports due to lack of adequate tariff protection, lack of non-tariff import barriers & unfair unethical market that favors perceived higher quality of familiar MNC brands with attractive trade margins and higher MRP vs unfamiliar unknown new Indian brands. Even if lower priced against European or American or Japanese brands, if not Chinese, Indian brands do not adequately induce retailers & hospitals to push their products; nor do they have the deep pockets to match the sales promotion & marketing budgets to sponsor events of celebrity doctors. Even as medical device makers in America allege the regulatory environment in India has hindered the growth of their export, data suggests otherwise. India imports around 80% of its medical devices requirements and a fourth of that comes from the US. The Top 5 countries that India imports medical devices from are US (21%), Germany (14%), Singapore (11%), China (10%) and Netherlands (7%). Exports have gone up a record 29% to Rs 12,749 crore in 2017-19, but it is not enough to neutralize the Rs 7,450 crore import increase. We are being globally competitive but not in our own market. There is an urgent need for the Govt. to expedite steps to end the 80-90% import dependence, expedite steps for patients’ protection, stronger quality & safety regulations, price controls to make medical devices and quality treatment accessible and also make affordable & ethical indigenous manufacturing viable.
India needs to build capability and capacity in domestic production IBT: How has your business evolved since inception and what are your domestic/global expansion plans? Gaurav Agarwal: We’re one of the fastest growing Cath Labs in the country. In our second year of commercial operations, we have become one of the fastest growing and most awarded Cath Labs in India. We have been able to accelerate very quickly as we have been able to address a burning need in the Indian market. Cardiovascular disease is the number one killer in the country, accounting for nearly one fourth of all deaths and our Cath Labs are working towards reducing that rate of mortality by making cardiovascular care more accessible to patients in Tier 2 and 3 cities. We plan to replicate our success internationally and target to expand our exports to 20 countries within the next 2 years. Some of the challenges that we are faced with include an unfavourable public procurement policy. Even today most government hospitals have USFDA & CE mark clauses in their tender, which discourages domestic industry. We look forward to the Government supporting our aggressive growth plans domestically and internationally by creating an enabling environment for capacity building and investment in R&D. IBT: Do you think that India has the necessary ecosystem to become the global hub for medical devices? Gaurav Agarwal: The med-tech start-up ecosystem in India has got a boost because of the many tech incubators that premium engineering colleges like IIT have come up with (I am personally also mentoring some of them). So, that is a very positive development. Also, the policy environment now is more favourable than before with governmental agencies like Technology Development Board (TDB) and Biotechnology Industry
Gaurav Agarwal, Managing Director, IITPL tells IBT that instead of attracting foreign players, the government must focus on creation of an enabling environment to promote the domestic production of medical devices. Research Assistance Council (BIRAC) funding start-ups through various schemes. While funding is limited to technologies that can create a social impact, I think it is a step in the positive direction. However, a lot still needs to be done in the area of bringing a separate medical device law. Medical devices are still governed by the Drugs & Cosmetics Act, 1940. So, I think that the change needs to begin at the regulatory level, and you will see that percolating down to quality and some critical gaps being filled by domestic manufacturers. IBT: What policy changes would you recommend for medical devices? Gaurav Agarwal: For a country of India’s size, we still import about 75% of our total consumption. In 2018, our import of medical devices was nearly Rs 40,000 crores and it has increased by 24% despite the government bringing in price
caps. I think there is a need to come up with enablers for the domestic industry rather than attracting more foreign players. The size of the Indian market is such that we do not need to incentivise foreign players to be present here. We need to build capability in domestic production by providing sops on imports of components. For instance in the stent industry, there is a tax of 10% on import of components to India; while for an imported stent, there is 0% customs duty. This inverted duty structure is indirectly giving a fillip to imports rather than boost domestic production. These policy gaps need to be addressed. We need to give tax breaks to start-ups. Access to capital is also very limited due to the liquidity crunch in Indian financial services sector. IBT: How do Indian medical devices companies fare internationally and what can be done to make them more competitive? Gaurav Agarwal: The government needs to incentivise Indian manufacturers investing in clinical trials through some schemes. Clinical trials are extremely expensive; especially multicountry randomised trials and the government needs to come up with a scheme to support and incentivise domestic manufacturers conducting clinical trials. Globally, the industry is growing at a rate of 5-6% and it is expected to reach half a trillion dollars within the next 5 years. This is fuelled by the rising geriatric population, growth in metabolic disorders, and in third world countries, the diagnosis of communicable diseases like STD, AIDS, etc. Global companies tend to invest 5-8% of their revenue on R&D; while Indian companies have catching up to do. I think the domestic industry needs to start investing aggressively in R&D capabilities & new product development.
January 2020 • India Business & Trade | 41
HISTORY OF RBI
How RBI became the ‘Bank of the Bankers’ A peep into the distinguished history of the RBI reveals anecdotes galore - when the bank was first nationalised, how currency notes were issued circle-wise at one point, the low share of woman employees and why replacing faulty clocks became a major issue! BY SAMEER PUSHP
R
eserve Bank of India (RBI) did not become the ‘Bank of the Bankers’ in a day. It’s been a long and tough journey of evolution, consolidation, policy changes and reforms that shaped it to be an institution with a difference. Legislation to set up the RBI was first introduced in January 1927, and after seven years in March 1934, the enactment got the approval of the Governor General. It is one of the oldest central banks in developing countries. RBI’s formative years have been eventful. Its efforts to adapt to central banking functions was neither deep-rooted nor widespread. The special responsibilities including those of exchange control in the backdrop of World War II were thrust upon RBI during the very first decade of its existence. RBI actually started as a privately held bank without major ownership by the government. Post-independence, the government cleared the Reserve Bank (Transfer to Public Ownership) Act, 1948 and took over the RBI from private shareholders after giving them appropriate compensation in 1949. Prior to the establishment of the RBI in 1935, the principal functions of a central bank were performed by the Government of India primarily, and to a smaller extent, by the Imperial Bank of India, since its establishment in 1921. The regulation of note issue, management of foreign exchange and the custody of the nation’s metallic and foreign
42 | India Business & Trade • January 2020
exchange reserves were the responsibilities of the Government of India. The Imperial Bank acted as banker to the Government and to a limited extent as a bankers’ bank, in addition to its primary functions as a commercial bank. By the time the Reserve Bank came to be established, organized banking in India had developed to an extent. Foreign banks, which were generally referred to as Exchange Banks, became an important aspect of the Indian banking sector. In 1941, the Karachi office was mainly a currency office with a strength of about 75 staff members. At that time currency notes, mostly in denominations of Rs 100 and Rs 1,000, were issued circle wise and were legal tender throughout undivided India. Names of circles of issue, viz; Mumbai, Kanpur, Calcutta, Madras, Karachi, Lahore; used to be printed on them. Each circle had to maintain memberwise records of notes issued & cancelled from time to time. If issued notes from the Karachi circle were collected in Calcutta, they had to be brought to Karachi and burnt there after noting the cancelled numbers in the issue ledgers. The ledgers contained individual numbers of notes issued & cancelled. If any note having the same number as a cancelled note was detected, an inquiry used to be conducted. In 1946, when Rs 1,000 notes were demonetized, some people exchanged their notes for Rs 500 to Rs 600 per piece, which were individually exchanged at
the RBI counters. Banks and other corporate bodies had changed their higher denomination notes with smaller denominations. Thus, they could oblige their customers and acquaintances by exchanging notes in their names. In those days, onerupee silver coins were examined by cashiers for their genuineness by striking them on the wooden counter or wooden tables at a very fast speed. They could identify counterfeit coins just by listening to the sound of each coin. The RBI was truly musical in those days! In the early 1940’s, senior official posts in RBI were filled up by promotions from the existing staff and/or by taking staff on deputation from the Imperial Bank of India. The final interview used to be held at the Central board of Directors in Calcutta. After partition, officers from Karachi were asked to report to the Mumbai office in 1947. The first lady to be taken up for clerical work joined in the early forties and the first to be recruited directly as an officer was Miss Dharma Venkatraman, who joined in March 1949. Gradually the numbers increased. According to data, women formed less than 8% of the total staff in January 1968; which is around 18% now. The pages of history tell us that there were in fact very few European recruits other than those who originally came from the Imperial Bank. This was mainly due to the efforts of Deputy Governor Nanavati who wanted the maximum opportunities to be given to the Indians. When it came to recruitments, he stood for Indianisation as much as buying India-made articles. Notably, when the office raised objections to the buying of India-made clocks on the grounds that they stopped working frequently. Shri Nanavati remarked, “It did not matter even if all clocks in the bank come to a standstill!” However, it is very interesting to learn that the Secretary of State for India favoured a leisurely time-table, for several reasons, for the enactment of RBI as an institution. First, apart from the time
Shaktikanta Das, Present Governor of RBI
IN THOSE DAYS, ONERUPEE SILVER COINS USED TO BE EXAMINED BY CASHIERS FOR THEIR GENUINENESS BY STRIKING THEM ON WOODEN COUNTERS necessary to make the preliminary arrangements, some of the preconditions envisaged for the establishment of the Bank, such as improvement of the budgetary position of the Government and the return of the normal export surplus, were required to be fulfilled. These pre-conditions were time consuming and burdensome. Furthermore, the Secretary of State was of the view that ‘it would be unfair to hasten the opening of the Reserve Bank until he (the new Finance Member) has had the opportunity of acquainting himself personally with the situation on the spot and been able to form his own judgement on matters. A suggestion put forth by the Government of India that the Bank should start without the function of currency regulation, was rejected by the Secretary of State. In the end, a compromise emerged such that the Bank started functioning neither as early as the Government of India desired nor as late as the Secretary of State had envisaged. One of the important agreements
was the ‘British Debt Pact with India’, which was signed on August 15, 1947. The Government of UK & Government of India signed an interim agreement to cover the period up to the end of 1947, relating to India’s sterling balances that time. In the meeting, it was agreed that a sum of £ 35 million should be available from India’s existing balance for expenditure in any currency, to be arranged up to December 31, 1947. In addition, a working balance of £ 30 million will be at the disposal of the RBI. Both Governments also agreed that no restrictions will be placed either on remittances of savings & belongings to persons of UK origin proceeding to UK to take up permanent residence or a voluntary repatriation of investments in India by persons residing in UK. Today, RBI works with the objective of ensuring monetary stability, monetary management, foreign exchange, reserves management, government debt management, financial regulation and supervision. Its core duties also entail currency management and operating the credit system to India’s advantage. Since inception, the bank has also played an active developmental role, particularly for agriculture and rural sectors. These are snap shots from the pages of history, which I could grab from the long and distinguished journey of the Bank of the Bankers.
January 2020 • India Business & Trade | 43
STEPHEN MANALLACK
IBT: India recently decided to opt out of the 16-nation RCEP agreement. What is your view on India’s specific concerns pertaining to safeguards for its domestic industry? Stephen Manallack: I am very disappointed to say that the RCEP negotiators have not adapted to make it possible for India to stay; that’s my view. RCEP negotiators should have created some conditions where India could have been a part of the agreement. Moreover, RCEP as a deal would make India vulnerable to Chinese products. Everything would be made in China and dumped here, virtually. That is a genuine concern. To me, I would like to see the negotiators make some allowance for the differences between the two countries. I would like to see greater flexibility by RCEP countries to bring India back, PM Modi back; because he is an innovator and an energizer. IBT: What are the reservations being expressed by other countries regarding India’s demand for services mobility within the RCEP bloc? What is a possible consensus for this issue? SM: Well, it is a bigger issue for Australia specifically and I will explain it this way: Whenever we have been negotiating an agreement with India, which we have never been able to finalize, I think we have not been flexible enough. However, we are already open to Indian services. For instance, in Melbourne, you will see offices of TCS, Infosys, Wipro, HCL etc. It is more like a downtown in New Delhi. It is just the same! The smell of the Indian food that’s available there is just sensational. Thus, very evidently, we are open to the services sector of India. Australia outsources a lot of back office work to India, as well. I think it is a mutually beneficial relationship. I don’t think we need to make any major consensus on that. IBT: Over the years, Australia’s exports to India have grown, but been largely dominated by mineral fuels and education services. What
There should be more collaboration rather than transaction Stephen Manallack, Chairman, Genesis India-Australia Horticulture Project believes that India and Australia should proactively explore ways to do business together. are the major sectors where you see potential for Australia to expand its exports? Conversely, what opportunities does Australia offer Indian companies for bilateral trade and investment? SM: Education is one such sector in my view. Even though it has been very successful, I don’t think it’s very sophisticated as a relationship. It is purely transactional. The two countries need to build deeper and meaningful relationships. I think there should be more collaboration rather than transactions. We should think of how we both can collaborate. Therefore, we need a closer approach for better outcomes. Furthermore, we are happy with our exports to India. However, we have enormous amount of agribusiness in Australia. That is where
44 | India Business & Trade • January 2020
we can expand and also look for some potential collaborations with India and come out with some fruitful innovations together. IBT: Considering that around 700,000 people of Indian origin are now Australian citizens, what role can they play in enhancing bilateral business relations in your view? SM: India is the topmost source of migrants and international students at any given time. Worth mentioning, India is fast growing its tourism industry. That is enormous. You won’t believe that Diwali is celebrated hugely in Melbourne. We have an Indian film festival in Australia that brings all the Bollywood stars. In fact, some of the films are made as joint productions between Australia and India, which
is a great mark of creativity. Moreover, if we talk of the Indian migrants or diaspora that are present here in Australia, I think they can definitely help us get closer to India, as they are well connected with their homeland and understand the market. It is we who have to think over this and not the Indians. IBT: Agriculture is an important area for potential collaboration between the two countries. How do Australian businesses view the potential of India’s food processing sector, and what kind of win-win collaborations are they seeking? SM: Australia brings diversity in its production and niche marketing with F&B products. This is growing in the Indian market as well, probably owing to the fact that it generally has a stronger base of middle class population. India sources cherry tomatoes, tomatoes and other processed foods in bulk quantities. Thus, I think we can do a lot of things together. It is just a matter of finding out how we can make it work. IBT: The negotiating positions of India and Australia are deemed too far apart for an early conclusion to the CECA. What are the major reasons for the impasse and how can it be resolved? SM: Both sides have their own reasons for delay. I am not happy about that. I want more flexibility
from Australia. I am not fully confident that Australia and India can resolve a complete economic free trade agreement. However, I opine that let us not wait to a situation where we can grieve to politician-to-politician about the conclusion of the economic cooperation agreement. Let’s just find ways of doing business together. When it is legal to do it now, let us just do it. IBT: India-Australia relations are defined as being largely characterized by Cricket, Commonwealth and Curry. What is your view on the evolution of cross-cultural relations between the two countries and how they have panned out in the business sphere (i.e. bilateral business engagements, people management, etc.)?
INDIA HAS GOT THE LARGEST POPULATION OF MILLENNIALS. THEY ARE WORKING RIGOROUSLY TO ACHIEVE SUCCESS. IN THIS PROCESS, THEY MAKE THEIR OWN IDENTITIES BY INNOVATING VARIOUS PRODUCTS & SERVICES.
SM: Cross-cultural understanding is key to the future of these two countries. My view is, we don’t understand each other very well right now. We think we do, but I think, particularly for the Australian side, we need to learn much more about the Indian culture. Knowing each other’s cultures affects how we negotiate. I am passionately in favour of Australia providing more training to business people to understand Indian culture. This will bridge the gaps and differences. India has got the largest population of millennials (21-37). They are working rigorously to become something and achieve success and in this process, they make their own identities by innovating various products and services. I want Australia to attract these millennials as we have been quite successful in creating segments and products. I think we can share more of that and attract more of these millennials to come across to Australia. IBT: How do you see the placement of Indian food on the international platform? SM: I think, India is very near to the beginning of having an impact on how the world eats, drinks, clothes and recreates. You look at “chai”, which is an Indian drink. You can find it ubiquitously throughout the globe. In fact, Chai Latte is a famous drink in outlets in Melbourne, today. The growth is exponential. It is just the beginning. So, I see Australia connecting with India as much as it can at all levels. IBT: How do you view IndusFood as a platform for the F&B industry? SM: The most exciting fact about IndusFood is that it can bring a decent understanding to the Australians about the new trends in the Indian F&B industry. Indian produce would excite the palates of Westerners, particularly Australians, who are very open to alternative tastes and flavors. It is a great expo to market Indian products to countries like Australia.
Cricket has emerged as a major pillar of improving India-Australia cultural ties
January 2020 • India Business & Trade | 45
EXPORTER PROFILE
From Bikaner to Bahrain, the rise of a global F&B brand After successfully winning mind share among domestic audiences and Indian diaspora, Bikaji is now looking to tap the growing demand for cross-country products. BY Team IBT
T
he state of Rajasthan is famous for myriad hues – majestic forts, vibrant markets, placid lakes, colourful clothes and elegant jewellery. And who can forget the love for spices, which binds the people of this state. A plethora of rich delicacies like daal baati churma, laal maas and gatte ki sabzi originate in the land of Rajasthan. The state’s magnanimous heritage continues to entice millions of visitors in the present day. Unsurprsingly, it is home to some of the finest names in the F&B industry. One such brand that has won the hearts of not just the countrymen, but also those settled abroad is Bikaji Foods International
Ltd. Currently helmed by the second generation of the founding family, Bikaji has charted a fascinating journey from being a Bikaner-based retailer to being a leading global FMCG brand. Founded in 1987 by Shri Shivratan Agarwal, Bikaji was originally known as Shivdeep Industries Ltd. The thought behind the inception of this brand was to bring system and order into the large unorganized sector for namkeens in India. Thanks to all the efforts of the team, Bikaji succeeded in becoming nearly a pan-Indian name by 1995. What also worked in this brand’s favour was that it was the first to automate the process of packaging. Moreover,
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it also garnered accolades for introducing stylish packaging that gave traditional Indian namkeens the muscle to match the funkiness of western chips and wafers way back in the 1990s. Over the years, Bikaji succeeded in expanding its presence across the globe. Within the very first decade of its launch, Bikaji established its presence in US, UK, Europe and UAE (1997). In the year 2000, it opened its doors to markets in Canada, Japan and Australia. In the last two decades, Bikaji has firmly established its footprints in about 32 countries – including New Zealand, Nepal, Thailand, Oman, Qatar, Bahrain, Italy, Benin, Tanzania, Uganda, South
THE MAJOR CHALLENGES WERE THE GEOGRAPHY (OF THE CITY BIKANER) AND THE INITIAL MINDSET AND THOUGHT PROCESS OF PEOPLE REGARDING THE ESTABLISHMENT RELATED TO PRODUCTS LIKE BHUJIA. INDUSTRIAL WORKING, LABOUR EXPERTISE ETC. WERE SOME OF THE KEY MISSING ELEMENTS Deepak Aggarwal Director, Bikaji Foods International Ltd.
Africa, Mauritius, Malaysia, Congo, Singapore and Nigeria. It also inaugurated franchises across Mumbai, Jaipur and Bikaner; and unveiled retail stores inside International and Domestic Airport Terminals at Mumbai and Jaipur. The brand has successfully leveraged the ubiquitous presence of Indian diaspora across the world. Initially, the brand had to travel an arduous journey to gain traction. “Major challenges were the geography (of Bikaner) and the initial mind-set and thought process of people regarding the establishment related to products like Bhujia. Industrial working, labour expertise etc. were some of the major missing elements,” reckons Deepak Agarwal, Director, Bikaji Foods International Ltd. However, what kept them going was the vision to offer the best quality, hygiene and competitively priced food products, meeting everchanging demands and building consumer loyalty. They worked not just on product quality and taste, but also on marketing - new & attractive packaging, designs, concepts, etc. The brand has constantly
reinvented itself time and again as per market, customer and industry needs. Consequently, product lines of Bhujia, Namkeen, Papad, Snacks and Sweets have been sure winners in the market. They now have Amitabh Bachchan as their Brand Ambassador and have also dabbled in e-commerce and B2B trade. Major investors like Lighthouse, Avendus, Axis, India Infoline and Intensive Fiscal Services have taken equity in the company, giving it an edge over other competitors in terms of expansion and R&D. In 2020, Bikaji is also planning to come up with an IPO. In the export market, Bikaji is banking on robust demand, not just from the diaspora but also from growing interest in cross-country
products. Plans include product diversification, capacity expansion & enhanced penetration in current markets. It also wants to carve a niche on overseas e-commerce platforms and venture into extruder products like hummus chips, lentil chips, lavaş chips & nachos; as well as milk-based products like Rasgullas, Raj Bhog & Chamcham. India’s rich resource base in the agri-sector provides enormous potential to serve global markets, with the right inputs vis-à-vis value addition, quality and taste to cater to diverse and discerning global consumers. As mavens in these areas, brands like Bikaji are well poised to drive the Indian food industry’s quest for global preeminence in the F&B space.
January 2020 • India Business & Trade | 47
VIJAY CHAUDHRY
“We are leaders in dehumidification” Dr. Vijay Chaudhry, Executive VP, International Business, Bry-Air (Asia), discusses how the company built a loyal global customer base for its dehumidifiers in his interaction with Sneha Varma of IBT.
F
or the past 55 years, BryAir has been specializing in designing and manufacturing desiccant-based engineered dehumidification systems capable of handling demanding applications in sectors such as food processing, lithium-battery, pharmaceutical, semiconductor, electronic industry, turbine storage, cold storage etc. With subsidiaries in China, Malaysia, Brazil, Nigeria and Switzerland, and an associate plant in the US, Bry-Air has footprints across the globe. The company’s range of products finds application across industries and has installation in over 80 countries. A Mechanical Engineer by education, Vijay Chaudhry, Executive Vice President, International Business, Bry-Air
(Asia), leads the entire International business and direct exports of the company. Talking to Indusfood-Tech, Chaudhry shares insights from his experience of over 28 years in managing the business value chain. Following are a few excerpts: IBT: Tell us about the company’s formation and growth story. How have you evolved as a business in India and abroad? Dr Vijay Chaudhry (VC): Bry-Air is the leader in dehumidification worldwide. We are a global solution provider for dehumidification and drying, gas phase filtration, plastics drying, conveying & mould dehumidification, hightemperature waste heat recovery, dry rooms critical for lithium battery production and energy-smart
48 | India Business & Trade • January 2020
cooling using waste heat. Bry-Air (Asia) has been at the forefront of dehumidification, and industrial air treatment technology with product range supplied globally. We have subsidiaries in China, Malaysia, Brazil, Nigeria and Switzerland, and an associate plant in the US. ISO 9001:2015 and ISO 14001:2015 certified, Bry-Air plants are among the most modern in the industry, supported by strong R&D & testing, computerised 3D designing, CNC fabrication, powder coating facilities and automated conveying system. The R&D centre at Bry-Air is recognized by the Department of Science and Technology and is undoubtedly one of the finest in the industry. The centre is continuously engaged in state-of-the-art product development in desiccant-based and fluted media technologies. IBT: What are the key product categories you cater to? And what are the major end-use sectors where you are witnessing good demand for your equipment? VC: Bry-Air has over 55 years of experience as a trusted solutions provider across industries like food processing, pharmaceuticals, lithium battery manufacturing, cold stores, data centres, plastics processing and process industries, etc. around the world. We specialise in identifying, researching and providing customised technologically advanced solutions to our customers across various sectors to cater to their varied requirements. The F&B sector is one of our primary demand sectors, and we have a variety of advanced dehumidification and dry air solutions to cater to our international and national customers from this sector. In India and globally, second to pharma, food is one sector where maintaining hygiene and quality are the biggest tasks. Food processing companies face many moisture-related issues such as long drying time, frequent downtime of production units, and loss of crucial characteristics of food products. This will lead to inferior product quality and reduced shelf life. So it
becomes imperative to tackle the moisture menace during product drying, processing, packaging and storage. The solution is Bry-Air’s Desiccant Dehumidifier, which provides the most effective and economical solutions to humidityrelated problems during product drying, processing, packaging and storage. It helps speed up the drying process and ensures consistent production, uniform coating, maintenance of food quality and long shelf life. IBT: How is the food processing industry evolving in India and how is it impacting demand for your solutions? VC: The changing lifestyle, paucity of time, and need for convenience have increased our dependence on packaged food. With this, snacks, crackers, instant tea, instant coffee, powdered milk, powdered sugar, instant soup, instant noodles, etc. demand increased level of sophistication in processing, packaging and storage. In processing powder foods, especially health foods like protein supplements, infant food, soup powders, cocoa, gelatines, dehydrated soft drink concentrate, instant coffee powders, concentrate fruit, etc, presence of moisture in the surrounding air can cause lumping and caking of food concentrate. It causes tiny particles to stick or cluster together, thus inhibiting their free flow in the manufacturing or packaging process. Many granular or powdered materials are transferred to packaging via high-velocity air streams. This is commonly referred to as pneumatic conveying or just airveying. Highly hygroscopic materials like sugar, flour, starches, beverages and food powders make humidity control a crucial element of materials handling systems. Transportation of powdered, granulated or flaked material by high-velocity airstreams can significantly be improved by drying the air. The solution to the problem lies
in maintaining required stringent conditions of temperature and humidity and in surrounding the processing, packaging and storage areas with dry air. Bry-Air desiccant dehumidifiers are designed to meet nextgeneration industry needs and are compliant with international standards. Our dehumidification solutions ensure right humidity conditions are maintained in processing, coating, and packaging areas. Bry-Air desiccant-based dehumidifiers lower the moisture content of the surrounding air, maintaining RH as low as 1% at a constant level regardless of the ambient conditions during production, storage and packing to help improve the quality and retain
HIGHLY HYGROSCOPIC MATERIALS LIKE SUGAR, FLOUR, STARCHES, BEVERAGE AND FOOD POWDERS MAKE HUMIDITY CONTROL A CRUCIAL ELEMENT OF MATERIALS HANDLING SYSTEMS IN THE FOOD PROCESSING SECTOR
the freshness of the processed food longer. Many food processing and confectionery manufacturers and exporters rely on Bry-Air Dehumidifiers to maintain and achieve high level of product quality in processing, packaging and storage. Our dehumidifiers have also been successfully functioning during the gum coating process at various facilities across the country and internationally. IBT: How have you progressed on the export front and which are the main markets you have successfully penetrated? VC: All major F&B brands in India exporting to various countries are our customers. Our products are installed in over 85 countries
and are successfully enabling F&B players to deliver what the customers need. The growing customer awareness and appetite for quality and safe products have made manufacturers and exporters go for the best equipment during the various processes of manufacturing. With a marginal increase in investment, food companies have relied on Bry-Air dehumidifiers to ensure compliance with international and domestic food standards and regulations. Leading multinationals and Indian conglomerates operating in the food and beverages subsegments like candies, savouries, tea and coffee, spices, dairy, infant food, health food, etc. across continents have installed Bry-Air dehumidifiers and reaped the benefits over the years. We have built our subsidiaries in China, Malaysia, Brazil, Nigeria and Switzerland, and an associate plant in the US. We find our footprints across the globe with a range of products that are finding application in all kind of industries throughtout the world. Our products have installations in over 80 countries including Southeast Asia, China, CIS countries, Indian subcontinent, West Asia, Middle East and Africa including South Africa & Australia as well as US and Japan. IBT: How do you see IndusfoodTech as a platform for the growth of the industry? VC: Indusfood-Tech being a platform that provides a global outreach to food processing machinery and equipment manufacturers, would offer a fair opportunity to get acquainted with the latest trends prevailing in the industry. IndusfoodTech would combine synergies of the massive Indian food market and the latest technologies from across the globe to move towards an improved production. IndusFood-Tech is not just a networking platform, but is also a forum to begin a sustained dialogue for innovations and further improve the industry.
January 2020 • India Business & Trade | 49
PRODUCT FOCUS
Food colouring: Appearance does indeed matter
The global food colouring market is expected to reach a size of US$ 3.2 billion by 2023. Stringent quality standards, reasonable pricing and constant innovation are key to success. BY: CATR
T
he global food colouring market is projected to reach US$ 3.2 billion by 2023, registering a CAGR of 9.8% from 2019 to 2023. Food colours are amalgamated and mixed to processed food items or beverages to boost their appeal. Dyes and pigments and are the most common colouring agents, which are used to colour food items and beverages in liquid, liquid gel, gel paste, and powder form. The initial usage of colourants in agricultural produce and foods is said to have occurred in ancient Egypt as early as 1,500 BC, when toffee and candy makers added natural extracts and wine to improve the products’ appearance. Factors driving the global food colour market are their ability to strengthen product appeal and growth in awareness about benefits of natural colours. For example, betanin, which is a natural food colourant, is used for its antioxidant properties. Similarly, red sandalwood has healing properties and is used in Ayurvedic treatment. They also serve other important purposes like making food appealing, providing colour to colourless and “fun” foods, offsetting colour loss, correcting natural variations in colour and allowing consumers to identify products on sight, like candy flavors or medicine dosages. Trade of food colouring agents surged from US$ 1.45 billion in 2014 to US$ 1.76 billion in 2018 at a CAGR of 5.5%. Top exporting countries of food colours are China, Netherlands, Denmark, US, Spain, Germany, Italy and Peru, while the list of top importers includes
US, Japan, Germany, UK, France, Mexico and Italy. Natural food colour is the largest product segment accounting for over 80% of the total global market revenue. But the market for synthetic food colours is also anticipated to surge due to growing product use by consumers in developing economies. Synthetic food colours are manufactured by chemical reaction and commonly used in food and pharmaceutical industries. Some common colours
FOOD COLOURING HS CODE 320300 AND 32041990 GLOBAL MARKET US$ 3.2 billion by 2023 TOP EXPORTER China (US$ 330 million) INDIA’S EXPORTS (2018) US$ 263 million MAJOR EXPORT DESTINATIONS FOR INDIA US, China, UK, Indonesia, Brazil, Mexico and Italy
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are allura red, brilliant blue, tartrazine, sunset yellow, quinoline yellow & indigo carmine. Strict regulations by several regulatory bodies like USFDA and European Commission are proving to be a constraint for manufacturers, thus forcing them to look at alternatives in the form of innovations in the natural colourants. India’s exports of food colour increased from US$ 203 million to US$ 263 million in the past five year with a CAGR of 6.5%. Major markets are US, China, UK, Indonesia, Brazil, Mexico and Italy. India is an emerging market for food colourants. Reasonable pricing, consistency in quality, uniform supply and purity standards, technical support and constant innovation are key to achieving success in this industry, as affirmed by Amit Bharadwaj, CEO, Ajanta Chemical Industries, which is a major Indian exporter of food colours. He comments on his company’s success mantra in this sector, “In 70 years (of operation), the immense contribution of expert staff, plants and machinery has supported us in terms of producing food colours that meet global standards. This enabled us to export our products to nations across five continents of the globe.” Whether it is natural or synthetic, the key challenge is to meet the desired specifications of the product as is stipulated by regulation. There are a set of regulations according to FSSAI, which can greatly facilitate Indian exporters in their bid to converge their quality standards with CODEX.
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FOOD TRENDS
Indians should embrace their local cuisines With a beautiful and inherent synergy, Indian food is scientific, varied, tasty and has food combinations that support immunity, growth, brain health, and several other functions.
E
ach of us should take pride in the wisdom that our traditional Indian cuisine holds. It’s something that our ancestors and we grew up on. If our ancestors lived a life full of energy and vitality, suffered from little or no illness, aged according to their actual age and hardly felt the need to eat a medicine – then they surely did something right! For the longest time, Indian food has got a bad reputation because it is linked with health problems like high cholesterol, weight gain, high carbohydrates; and consequently, then we started aping what the Western culture advocated. But all of this
has to change because when we go back to those olden times, diseases like diabetes, high triglycerides, high blood pressure, cancer, Alzheimer’s, dementia were literally unheard of. All of this started changing when lifestyles changed, so food is not to blame, but lifestyle is. The beauty of Indian food is the
52 | India Business & Trade • January 2020
“synergy” that it involves between two or more ingredients. Look at a traditional Indian plate. It has got some rice & lentils, which make a complete protein and carbohydrate combo; vegetables & salad for fiber; vitamins and raw enzymes; and some pickle on the side, which acts as a perfect probiotic and helps in stimulating the secretion of digestive enzymes. At the same time, Indian food is scientific, varied, tasty and has food combinations that support immunity, growth, brain health, and several other functions. Back in the times, people did not need high protein diets even if it was a farmer or a laborer. People had meals sufficient in protein to get them through their day and also look decently welltoned. Almost every Indian curry has a base of onion, tomato, garlic, turmeric, black pepper, cumin or mustard seeds and a source of fat like ghee or coconut oil. This is an absolutely fantastic anti-inflammatory and immunity-boosting mix for the human body. The synergy of fat, turmeric, and black pepper goes a long way in boosting the bioavailability of curcumin
– an active ingredient in turmeric for which people spend tons and tons of money, to be able to buy it in supplemental form. The incredible amount of spices that goes into Indian food is truly phenomenal – ajwain, jeera, elaichi, cinnamon, bay leaf, nutmeg, pepper, dry ginger powder, mustard seeds, turmeric, etc. And when you dissect these spices, you will find amazing health benefits that are now being used in extract form to be sold as a superfood by the West. A similar variety exists in fruits, vegetables, oils, herbs, whole grains, lentils, and pulses across the country – which grow in a particular region and season for a specific reason. Then there is a wide variety of chutneys using basic kitchen ingredients that can add a whole lot of flavour and nutrition to the meal like flaxseed chutney, amla chutney and curry leaves chutney. Even with the basic Indian dishes, one can add variety and flavour by playing with spices, herbs, and other seasonings. A simple rasam can be made in a different way by adding beetroot and lemongrass. A simple Indian khichdi can be made even more interesting by exploring millets in place of the usual rice that goes in, adding some peanuts to it for the crunch and more flavours via herbs and spices, depending on individual choice. From North to South and West to East, we are so culturally rich in our cuisine. Up north, people pop in a piece of jaggery post their meals. Jaggery not only helps satisfy the need for a sweet but also stimulates digestive enzyme secretions, thereby aiding digestion. Down south, people mostly eat with hands and on a banana leaf and jeera water is served in these areas in place of normal water. Similarly, there is khichdi, sattu, dosa, idli, chillas, poha, sambhar, rasam, chutneys and pickles, snacks like dhokla, roasted chana, makhana, beverages like kanji, chaas, jaljeera, kaadha (herb concoctions), turmeric milk, masala chai – each of which is beautifully designed for our health and also for holistic healing.
INDIAN FOOD HAS AN ABUNDANCE OF TRADITIONAL GRAINS LIKE JOWAR, RAGI & BAJRA. ONCE CONSIDERED FOOD FOR THE POOR, THEY ARE NOW A FOOD OF CHOICE FOR ALL OF US. Indian food has an abundance of traditional grains like jowar, ragi and bajra that were once considered food for the poor, but are now a food of choice for all of us. They make a comeback and in a big way because people are gradually realizing the power these grains hold in terms of nutrition and energy. This was the kind of food our ancestors grew up eating and if they lived so long with little or no sickness then they surely did something right! These grains are rich in fiber, unlike the polished varieties of grains that we get today. Most of them are free of gluten. While gluten is not a problem, most people today have a weak digestive system and are hence allergic to it. Moreover, the variety of wheat available today has far more gluten than traditional wheat (khapli) contains. Not only that, but Indian culture has also taught us how to eat these
foods in the right way for maximum benefits. Eat while sitting on the floor and in vajrasana post-meals, eating with hands, offering a gratitude prayer while eating and eating with the family. Such is the wisdom of our country and we must once again go back to our roots. Having said that, it’s also important to understand that while the Indian cuisine is perfect in all its forms, we can’t claim it to be the “healthiest” in comparison with other local cuisines across the world. Indian food is healthy for Indians. Similarly, each of us must embrace our own local cuisines across the world – be it Korean, Ethiopian, Mexican, Italian, Chinese – when cooked the traditional way with the right quality of ingredients and the right lifestyle. It is only when every Indian starts to embrace their local cuisine, respectfully eat and stop when full, savor every bite – will they move away from the diet mindset and fad culture which is, unfortunately plaguing so many of us. LUKE COUTINHO is a globally renowned holistic lifestyle coach and the co-author of the bestseller The Great Indian Diet with Indian actress Shilpa Shetty.
January 2020 • India Business & Trade | 53
What’s the latest
@ TPCI
India Pavilion at 14th Vietnam International Chemical Industry Exhibition, Ho Chi Minh City
January 2020
Buyer-Seller Meet (BSM) in Kabul, Afghanistan Trade Promotion Council of India and the Indian Embassy in Afghanistan organised a Buyer-Seller Meet (BSM) in Kabul on December 1, 2019 for Indian exporters in the food and beverages sector. Afghanistan’s Minister of Industry & Commerce H.E. Ajmal Ahmady graced the occasion as the Chief Guest. H.E. Vinay Kumar, Ambassador of India to Afghanistan encouraged Afghan traders to actively participate in IndusFood in Delhi in January 2020. The delegation was led by Mohit Singla, Chairman, TPCI and Tara Chand, Director, TPCI. Around 46 Indian exporters participated, including Shree Ganesh Dryfruits (Dry Fruits); Capital Ventures Pvt. Ltd. (rice and F&B); Indies Global (ready-to-eat meals); Nabeel Meatex (Buffalo Meat); Royal Import & Export (bakery products) and Italian Edibles (confectionery items).
Event: Buyer-Seller Meet (BSM) Sector: Food & beverages Date: December 1, 2019 Venue: Kabul
TPCI with the support of Department of Commerce, Government of India, organised an India Pavilion at the 14th Vietnam International Chemical Industry Exhibition that is held in Ho Chi Minh City, Vietnam during November 27-30, 2019. This gala show is a fair for the dyes, chemicals and pigments industries that are based in Vietnam. The pavilion was inaugurated by HE Shri Pranay Verma, Hon’ble Ambassador of India in Vietnam along with Dr. K Srikar Reddy, Hon’ble Consular General of India, Ho Chi Minh City, Vietnam. A total of 46 Indian companies from Dyes , Intermediaries, Agro Chemical and Fine Chemical sectors participated in the exhibition. This delegation was led by Sandip Das, Director, TPCI. Some of the major companies that participated in the India pavilion included; UPL, Jubilant, HIL India, Nova Dye Chem, Meera Dye Stuff, India Glycols, Gujarat Fluorochemicals, etc.
Event: 14th Vietnam International Chemical Industry Exhibition Sector: Dyes, chemicals and pigments industry Date: November 27-30, 2019 Venue: Ho Chi Minh City, Vietnam
54 | India Business & Trade • January 2020
India
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Indian enterprise. Global opportunities
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TPCI organises India Pavilion at FI Europe, Paris, France TPCI organised an India Pavilion at FI Europe, Paris, France during December 3 -5, 2019. FI Europe takes place biennially in a major European city, uniting the world’s leading food and beverage suppliers, research & development, production and marketing specialists to showcase the most diverse range of new and innovative ingredients and services. India Pavilion at FI Europe was inaugurated by Dr. Rajendra Kumar, IAS, Principal Secretary to Government, MSME Department, TP Rajesh, IAS, MD-MSME, Trade and Investment Promotion Bureau, Tamil Nadu and Premanand Jyothy, First Secretary, Embassy of India in Paris, France. Around 60 Indian companies participated, out of which 15 took part under TPCI’s pavilion. The delegation was led by Deepak Vohra, Senior Deputy Director, TPCI.
Event: India Pavilion at FI Europe Sector: Food and beverage suppliers, research & development, production and marketing specialists Date: December 3- 5, 2019 Venue: FI Europe, Paris, France
TPCI organises India Pavilion at SIAL Middle East (SIAL ME), UAE TPCI with the support of Ministry of Commerce and Industry organised an India Pavilion at SIAL Middle East (SIAL ME), UAE during December 9-11, 2019. SIAL ME is an international trade fair for the food and beverage industry, which takes place annually in Abu Dhabi. India Pavilion at SIAL Middle East (SIAL ME) was inaugurated by H.E. Shri Pavan Kapoor, Hon’ble Ambassador of India to UAE. A total of 46 Indian member delegates from the Indian F&B industry participated in this event. The delegation was led by Sachin Kumar, Deputy Director, TPCI.
56 | India Business & Trade • January 2020
Event: India Pavilion at SIAL Middle East (SIAL ME) Sector: Multiple Date: December 9, 2019 Venue: Abu Dhabi
Department of Commerce Ministry of Commerce and Industry
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