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INDIA'S NEW OPPORTUNITY - 2020

- 40 Million New Jobs - $200 Billion Annual Revenue

REPORT OF THE

HIGH LEVEL STRATEGIC GROUP

All India Management Association

Excellence in Management

CONSULTING PARTNER

THE BOSTON CONSULTING GROUP

IMPLEMENTATION PARTNER

Confederation of Indian Industry

Copyright © 2003 by All India Management Association, The Boston Consulting Group

All rights reserved. Published February 2003.

All India Management Association

"Management House"

14, Institutional Area

Lodhi Road

New Delhi 110 003, India

Phone: 91 11 2461 7354

Fax: 91 11 2462 6689

The Boston Consulting Group

55/56 Free Press House

215 Free Press Journal Marg

Nariman Point

Mumbai 400 021, India

Phone: 91 22 2283 7451

Fax: 91 22 2288 2716

3rd Floor, DLF Centre

Sansad Marg

New Delhi 110 001, India

Phone: 91 11 2335 8912/2335 9521/2335 9574

Fax: 91 11 2335 8915

Confederation of Indian Industry

23, Institutional Area

Lodhi Road

New Delhi 110 003, India

Phone: 91 11 2462 9994-7, 2462 6164/2462 5407

Fax: 91 11 2462 6149/2463 3168

The thoughts and analyses contained in this report are based on data and assumptions derived from external sources, and are presented for informational purposes only. Though the authors (All India Management Association and The Boston Consulting Group) have used reasonable efforts to compile

and analyse the best sources reasonably available to them at the time of writing this report, the authors

have not independently verified the completeness or accuracy of the data and assumptions, and they do

not make any representation regarding the same. Changes in the underlying data or operating

assumptions will clearly impact the analyses and conclusions. Therefore, the information contained in

this report should not be relied upon without independent investigation and analysis, and the authors

will not be responsible for any liabilities incurred by any third party as a result of reliance upon such

information. Designed and produced by PMDL Design Private Limited www.pmdl.com

INDIA'S NEW OPPORTUNITY - 2020

- 40 Million New Jobs - $200 Billion Annual Revenue

REPORT OF THE

HIGH LEVEL STRATEGIC GROUP

INDIA'S NEW OPPORTUNITY- 2020

Contents

PREFACE1

EXECUTIVE SUMMARY3

Why is this report different? 5

INTRODUCTION7

THE GROWTH IMPERATIVE11

THE OPPORTUNITY13

THE UNCERTAINTY21

THE AGENDA FOR ACTION30

MAKING IT HAPPEN34

Marketing India 34

Educating and Training the Indian Workforce 36

Connecting India 40

Sector-Specific Actions 42

CONCLUSION48

INDIA'S NEW OPPORTUNITY- 2020

1PREFACE

Preface

In an increasingly inter-dependent world, all countries will vigorously pursue policies to optimise comparative factor endowments. The rapid technological changes, while making transactions more seamless, will reinforce the process of global integration. It has been said that the battles of this century will be fought and won on the "power of ideas." Societies will increasingly become knowledge- based and promote knowledge-based industries. India has a distinct comparative factor advantage as a vast reservoir of skilled manpower. The demographic differentials reveal that over the next 20-30 years, India has distinct advantages in a population profile concentrated in the younger age group, where many new opportunities can be fully optimised. What are the policies that would enable India to optimise these emerging opportunities and what should we as a nation do in concert so that we turn out to be winners and not losers? With the objective of answering these questions, the All India Management Association (AIMA) had set up a High Level Strategic Group comprising leaders from industry, academia, and the government. The results of the deliberations of the group, involving in-depth interaction with wide segments of society and decision makers, are contained in this report. A task force comprising AIMA, the Confederation of Indian Industry, and The Boston Consulting Group has been constituted to implement the Action Program that has emerged. I have no doubt that all the stakeholders, including the government, the corporate sector, and academia, will contribute in the implementation of the recommendations contained in the report. This will enable India to enhance its growth, secure additional employment, and maximise the emerging opportunities. (N. K. Singh)

Member

Planning Commission

Chairman, High Level Strategic Group

INDIA'S NEW OPPORTUNITY- 2020

Executive Summary

The steam engine (and its successor, the internal combustion engine) heralded the industrial revolution that led to economic growth in the West. These engines required fuel - coal and petroleum. As the industrialised countries exhausted their own sources of supply they turned increasingly to other sources, which resulted in the economic growth of the supplying countries, such as the oil producing countries of the Middle East. This pattern is unfolding again. The growth paradigm of Western economies requires another kind of fuel - knowledge workers and skilled professionals. For example, U.S. growth rates of the 1990s are primarily attributed to productivity increases enabled by a highly skilled workforce. In the next two decades developed countries will face a shortfall of fuel (skilled professionals) and once again will have to look towards developing countries to make up the shortfall. For India, growth is an imperative. To be counted as a major economic powerhouse by the end of this century's first quarter, India needs to accelerate its economic growth beyond the existing rates of 5-6% per annum. Then only can its citizens, more than a quarter of whom (~28%) live below the poverty line today, afford better lifestyles. In addition, at current growth rates India is projected to have a significant unemployed population (estimates range between 19 and 37 million unemployed by 2012), the largest share of which will be educated youth. The unemployment and poverty resulting from inadequate growth will retard other efforts to place India amongst the top global economic powers. Therefore, the acceleration of economic growth and the employment of skilled youth in the next two decades are key concerns for India Inc. Perhaps, we have for too long looked to others for models of growth. We have marvelled at the tigers and the dragon and wondered what we could do to copy their success. But that is denying us our unique place in the world. Perhaps if we start with our own strengths, we can find an opportunity in our uniquely large and skilled workforce - an opportunity that distinguishes our model of growth and that is opening up for India as a result of global developments this report analyses. While India faces an unemployment crisis, ironically, many countries are projected to face workforce shortages in the same period due to lower birth rates and an increase in the proportion of the elderly in their population. While skilled workforce requirements are increasing in line with economic growth, availability is not keeping pace, as a result of fewer people entering the workforce and the trend towards early retirement. Select professions are already witnessing a shortfall (IT services, medical, education). The workforce shortages (mostly in skilled categories)

3EXECUTIVE SUMMARY

can slow down economic growth in these countries and have other adverse socio- economic implications. Adjusting for initiatives taken by governments to manage this crisis, the High Level Strategic Group (HLSG) estimates a net workforce shortfall of 32-39 million by 2020 in the developed countries of today. This challenge faced by some countries presents a great opportunity for some developing countries, such as India. India can target this shortage by providing remote services to these countries and also by importing customers and servicing their needs in India. The contribution of remote services alone, which is the main focus of this report, will be $133-315 billion of additional revenue flowing into the country and the addition of 10-24 million jobs (direct and indirect) by 2020. Further, importing customers into India (medical tourism, educational services, leisure tourism) could add $6-50 billion in revenue and create 10-48 million jobs (direct and indirect) by 2020. HLSG estimates that through remote services and the importation of customers India could enhance year-to-year GDP growth by up to 1.5% over current growth rates, most of which (~80-85%) would be through remote services. India is positioned well against these opportunities given its large pool of qualified manpower, track record in service delivery in sectors like IT, and lower costs (specifically in areas such as medical treatment and education services). However, in order to convert these opportunities into actual revenues, India Inc. will have to take several initiatives. HLSG has identified six thrust areas for action to boost demand for India's services: oStrengthen India Inc. image/brand oFocus marketing on select countries with select services oBuild customer credibility oPromote acceptability of the 'offshore' concept oImprove service experience for customers oInvest in promoting trials HLSG has also identified six thrust areas for action to boost supply of India's services: oDevelop domain expertise in specific areas oReform education and training sector to increase base of skilled professionals oStrengthen connectivity infrastructure (telecom, IT, airports) oPromote public-private partnerships oForm interest groups around opportunities oAlign legal and regulatory structure

INDIA'S NEW OPPORTUNITY- 2020

4

Why is this report different?

Over the last few years, many reports have been written on how to lead India onto the path of accelerated development. While most reports correctly identify opportunities and build a coherent roadmap, they often do not result in effective implementation and hence opportunities are not realized. We would like our report to stimulate actions towards the goal. Therefore, we have analysed why reports fail to engage the implementers, and we have used this understanding to shape our report. We have found that reports that fail to have much impact fall into two categories:

1. The first category involves a lot of analysis and lays down detailed sets of

instructions for those who have to implement whatever ideas are in the report. The focus of the process is to first complete the report. Once completed, such reports often end up on the shelf. The biggest shortcoming in such cases is that the people who have to implement the instructions do not fully comprehend what needs to be done and/or do not take ownership of the task, as they are not involved in its development

2. The second category starts by analysing the situation and outlining broad

themes. However, the follow-up process is not documented well and is largely unstructured. The driving principle in this case is to provide an idea and hope that it will work. Here again, the report hits the shelf and gathers dust. This report takes a different approach. The approach adopted here rests on two simple principles, which have been found to be highly effective in situations involving disparate interest groups:

1. Create an appreciation of the opportunities that exist and prioritise areas

for action

2. Align processes and participants (implementation partners) towards a

common goal In addition to identifying areas where action needs to be taken, this report provides a structured framework for key stakeholders to participate in the assimilation of ideas and development of their implementation plans. The report is the first in a series of steps necessary to fulfill the overall goal. In the next step, appropriate agencies will develop implementation plans for the critical areas identified. These agencies may be inter-departmental task forces for the key areas, or joint industry- government task forces, or business organisations that pilot and implement projects to realize the benefits of the opportunities analysed in this report.

5EXECUTIVE SUMMARY

INDIA'S NEW OPPORTUNITY- 2020

7

Introduction

The idea of providing professional services to the developed world remotely from India is not new. However, little analysis has been done so far on the exact nature of this opportunity and the action steps required to exploit it. The All India Management Association (AIMA) set up a High Level Strategic Group (HLSG) to examine these issues. The HLSG comprised leaders from industry, academia, and the government. The objective of the HLSG was to: oIdentify the opportunities available to Indian companies oHighlight the need for policy makers to act quickly in view of the urgentjob-creation requirements oDevelop a process that creates alignment between the various stakeholders andthe common goal A key consideration for the HLSG during the development of this report was its ability to bring about real change. To this end, the HLSG invested significant time in understanding the reasons why India, despite having sufficient knowledge of what needs to be done, often fails to 'make it happen.' The collective experience of the HLSG members suggested that the inability to mak e things happen faster, with alignment, is the main reason why India misses opportunities. On further study, it was felt that the lack of speed was generally a result of an implementation model that enforces compliance rather than obtaining commitment (Exhibit 1). The power of commitment amongst stakeholders to relentlessly obtain the desired outcome cannot be underestimated. Unfortunately, most approaches to implement change are designed to obtain compliance rather than commitment. As a result, the energy in the process peters out. To obtain commitment from all stakeholders, the HLSG embarked on a path that architects and guides the process of involvement and action using the report as a stimulus. The chosen approach was based on the analysis of several initiatives, some of them national in scope, and some within corporations. In almost all cases, the members reached a similar conclusion Ð the quality of process has a far greater impact on the outcome than the amount of detail (recommendations) in the report. Therefore, the HLSG adopted an approach that entailed the structured involvement of all concerned stakeholders as opposed to those approaches adopted in the past that have not been found to be effective (Exhibit 2).

INTRODUCTION

INDIA'S NEW OPPORTUNITY- 2020

8

INDIA'S NEW OPPORTUNITY- 2020

Exhibit 1

SUCCESSFUL IMPLEMENTATION MODEL - MOVING FROM

COMPLIANCE TO COMMITMENT

Commitment

"Wow! Where do we start? Who else do I know who can help us?"

Genuine Compliance

"What a great idea! What can I do to help?"

Formal Compliance

"It's expected - of course I'll do it"

Grudging Compliance

"I wouldn't want to lose my job, now would I?"

Non-Compliance

"Right. Ask me about it again next month."

Malicious Compliance

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

Compliance

Exhibit 2

Approach

DIFFERENT APPROACHES TO CONVERT IDEAS INTO ACTION

Driving principle Outcome

AnalysisReport

with action steps"Instructions" to implementers"Complete report first" In most cases, little happens, opportunity lost, report on shelves

Analysis

Report

with broad themesUnstructured follow-on"An idea and hope for the best"In most cases, little happens, opportunity lost, report on shelves1 2

Ideas are converted to

action by implementers

AnalysisReport

with action areas"Managed, participative process, facilitated by reports"3Structured involvement of actors

HLSG is following the third approach

We would like to highlight that this report is the first step in a guided process of developing focused and aligned actions. The report should form the basis for the second step, which is developing a structured process to align the various stakeholders and actors. This process should be characterised by dialogue and analysis within and between the various groups, and should lead to self-developed action plans. Thereafter, it is desirable to have an agency or process to periodically review and coordinate actions because the plans and actions of the various groups in their respective areas can reinforce each other (Exhibit 3). An analysis of several policy-change programs undertaken by the government suggests three catalysts for implementation:

oStrong support from influential people who drive the agenda and clear awayroadblocks (e.g. PMO/FM, respected bureaucrats)

oDynamic leadership from bureaucrats who take ownership to carry the processto conclusion

oContinuous external pressure on the government for action as well as adviceon the way forward from industry associations and companies

9INTRODUCTION

HLSG role Hand over to appropriate agency

ÒREPORTÓ

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

GUIDED PROCESS

FOR ALIGNMENT AND

DETAILED ACTIONS

• Task forces for critical areas • Dialogue and analysis triggered by report • Integration process

IMPLEMENTATION

• All agencies concerned • Monitoring and co-ordination processExhibit 3 PLANNED APPROACH - FROM "REPORT" TO IMPLEMENTATION

INDIA'S NEW OPPORTUNITY- 2020

10

INDIA'S NEW OPPORTUNITY- 2020

On the other hand are several factors that deter successful implementation. These are: oLack of alignment within government (politicians and bureaucrats) on core guiding principles for action oLack of involvement of all concerned ministries at planning stage oLack of agreement on implementation plan - leading to coordinationproblems across various entities oLack of continuity and accountability of key bureaucrats oLack of systematic involvement/push from companies and industryassociations oMismatch between the requisite skills for the job and allocation ofresponsibility oRequirements for significant funding from the government The results of the deliberations of the HLSG, supplemented by contributions from many others, are contained in this report. The report describes: oGrowth imperatives for India oNature and size of opportunity from remote servicing and importingcustomers oPotential areas for action oIndustry-specific action steps for central and state governments and Indiancompanies A task force comprising AIMA, the Confederation of Indian Industry (CII), and The Boston Consulting Group (BCG) has been constituted to orchestrate the engagement of 'India Inc.' - officials from central and state governments and business leaders - to work together and realize the opportunities for India that the

HLSG has analysed.

The Growth Imperative

The Indian economy gained fresh momentum with the liberalisation ushered in by the government in 1991. The average GDP growth rate climbed to nearly 6% during the 1990s, compared to a tepid 4% for the first 40 years since independence. However, despite the gains made post-liberalisation, India still has a long way to go. More than a quarter of its population still lives below the poverty line. Its GDP per capita (non-PPP adjusted) fares poorly against other nations with comparable backgrounds (Exhibit 4). The spurt in the years immediately following liberalisation appears to have slackened and GDP growth is reaching a plateau at 5-6%. The current developmental problem facing India is exacerbated by the changing demographic profile of the country. At current rates, anywhere between 19 and 37 million people will be unemployed by 2012, the largest chunk of which will be amongst the educated youth. Therefore, the need for strong, accelerated economic growth is now more acute than ever. The solution to accelerating India's economic growth should keep in mind the current realities of the Indian economy. In view of the limited investment ability

11THE GROWTH IMPERATIVE

12,000

10,000

8,000 6,000 4,000 2,000 0

10,479

South Korea

Malaysia

Russia IndonesiaThailand China India5,024

2,476

1,831985944430

% population below the poverty line GDP/capita ($/person) 40
30
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