India ICT Infrastructure Assessment

1
India ICT Infrastructure Assessment

• James Hu Lynne Lucas

2
Agenda

• Overview
• Political Structure
• Culture Human Capital
• Economy
• Environment
• Structure transition
• Outlook Issues
• ICT
• Telecommunications Infrastructure
• Internet Usage
• Computer Industry
• Software Industry
• Overall Assessment Attractiveness

3
India at a Glance

• 3.2M sq km
• Pop. 1.13b (est. July 2007)
• Capital New Delhi
• Current Government
• Prime Minister Manmohan Singh
• President Dr. A. P. J. Abdul Kalam

4
Political Structure

• Sovereign democratic republic
• Bicameral parliament
• Three branches
• Legislature
• Executive
• Judiciary

5
Political Structure

• Legal system based on English Common Law
  separate codes for Muslims, Christians, Hindus
• Parties INC, BJP, CPI, NCP
• Corruption
• Rank 70, CPI 3.31
• Implications
• Correlation between corruption and poverty
• Bribes to facilitate business transactions
• Black money is the oxygen for corruption
• Significant improvement from 2005
• 1 CPI Rank/Score from Transparency International

6
Culture

• Religious groups
• Hindu 80.5
• Muslim 13.4
• Christian 2.3
• Sikh 1.9
• Others (Buddhist, Jain) lt 1 each
• Regional differences,/influences
• South vs. North
• West India
• Caste system

7
Culture

• High level of Syncretism
• Religious
• Music
• Architecture
• Popular media
• Traditions
• Hostede/Trompenaars
• High PDI reverence for elders/authority
• Collectivist
• Particularist
• Medium Masculinity
• Low UA
• Long-Term Orientation

8
Human Capital

• Educational Infrastructure
• Well-developed university system
• Literacy 59.5
• 70.2 M vs. 48.3 F
• Internet Penetration 3.24
• Challenges in Primary Education
• Reaching 100 literacy
• Saksharata Yagnam (literacy campaign)
• English Proficiency
• 350M1 vs. 5 fluency?
• gt than USs 251M
• Hindi primary language (30)
• 1per est. 30 of pop. David Crystal, Lingua
  Franca YaleGlobal
• 2

9
Development Milestones

• Recent Developments in Indias history

10
Economic Environment 2006 figures
11
Economic Environment

• Outlook1
• World Competitiveness Score 64.416 and increasing
• FDI 5.3 billion
• Continuing push for economic reforms
• Liberalization may be limited by Coalition
  politics
• Government alliances vs. rural sector
• Continuing tight money policy thru 2007, ease
  after 2008
• 1 From IMD World Competitiveness Yearbook 2006
  Scoreboard Economic Outlook
• 1

12
Economy

• India on fire- The Economist, Indias GDP has
  grown 9.2 since September of 2006
• 8 average in the last four years, 6 from
  1980s-1990s, and 3.5 averagely before 1980s
• The unprecedented growth experiencing in the last
  few quarters is starting to show the result of
  the economic reform initiated on early of 90s.
• 4 of national annual public infrastructure
  investment
• Stress on the lagging infrastructure put up by
  high growth in other sectors of economy has
  started to be seen

13
Economy structure and transition

• Indias economy policy was heavily influenced by
  colonial experience since its independence in
  1947
• Its economic policies tended towards
  protectionism, with a strong emphasis on import
  substitution, internal industrialization with
  high governmental interventions in the markets
• Country has a mixed economy that had a large
  public sector, complex business regulations on
  the markets with strong control of central
  planning
• After 1980, inspired by the high growth of
  Asias Four Little Dragons, Hong Kong,
  Singapore, Taiwan and South Korea
• India started its first stage of economy reform
  by relaxing the capacity expansion of its major
  industries, removing price control and reducing
  the corporate taxes
• The economy started to grow between rate of 6
  -7 until the new economic policies initiated in
  1991
• The second stage of economic reform emerged after
  1991 initially was responding to the government
  balance-of-payment crisis
• Caused a fundamental change in the economic model
  by greatly reduced governmental interventions
  through removing licensing requirements in
  investment, import and industrial market and
  ending many monopolies in the public sector

14
Economic outlook and issues

• As 2006 economic data has shown, service industry
  accounts to 54.1 of the GDP, followed by
  industry 27.6, agriculture 18.3 and
  manufacturing 15.1
• Goldman Sachs 1999 prediction, Indias economy
  will continue to register a real growth from 5.3
  to 6.1 in the next decade
• Widening wealth gap, which 10 of population
  occupies 33 of national income
• Lag of infrastructure investment
• 4 of national revenue - 31 billion, is
  allocated for infrastructure investment, such as
  power, construction, transportation,
  telecommunication and real estate
• Social economic issues such as, poverty which
  17.59 of population (300 million) lives under
  poverty
• corruption which is pervasive in public services,
  and unemployment which is roughly 7 of workforce

15
Privatization foreign direct investment

• "It is evident that disinvestment in public
  sector enterprises is no longer a matter of
  choice but an imperative The prolonged fiscal
  hemorrhage from the majority of these enterprises
  cannot be sustained any longer," - Indian
  President address parliament at 2002 budget
  session
• Started at early 90s and has taken a gradualist
  approach
• Manufacturing and then service and
  infrastructure, and recently moved into social
  sector
• In two forms - deregulation and divestment
• Reach initial 20 of privatization in state-owned
  enterprises and further reduce the ownership to
  51. The last stage is to reach 76 of
  privatization Devesh Kapur,2002
• FDI inflow to India has reached US647 million in
  January and it was 326 increase comparing to
  January of 2005 Chaze,2006
• Wide-cross industry investments and major sources
  coming from Germany, Singapore, UK and US
  --Ministry of Commerce of India

16
Joint ventures

• Of 25 major joint ventures between foreign and
  Indian companies established from 1993 to 2003,
  only three survived - 2005 study by consultants
  McKinsey Co.
• Most ran into trouble because the local partner
  couldn't invest enough to expand the business
  quickly to match the ambitions of the foreign
  company

17
Stock exchange

• Unlike in China, where foreign investors account
  for less than 1 of market capitalization on the
  Shanghai and Shenzhen markets, foreigners account
  for about 21 of market value on the Mumbai
  Exchange
• India's oldest and first stock exchange Mumbai
  (Bombay) Stock Exchange Established in 1875. More
  than 6,000 stocks listed.
• Total number of stock exchanges in India 22
• They are in Ahmedabad, Bangalore, Calcutta,
  Chennai, Delhi etc.
• There is also a National Stock Exchange (NSE)
  which is located in Mumbai.
• There is also an Over The Counter Exchange of
  India (OTCEI) which allows listing of small and
  medium sized companies.
• The regulatory agency which oversees the
  functioning of stock markets is the Securities
  and Exchange Board of India (SEBI), which is also
  located in Bombay
• International exchange consolidation is under way
  in earnest
• U.S. and European markets are already closely
  integrated, with the New York Stock Exchange's
  parent, NYSE Group, merging with Europe's
  Euronext and partnering closely with the Tokyo
  Stock Exchange. India is also in play NYSE and
  three other strategic investors announced last
  month diat they were each taking 5 percent stakes
  in NSE

18
Telecommunications infrastructure

• Telecommunication landscape
• In 2005, there were 46.19 million telephone fixed
  lines and 52.22 million cell phone lines in use
  in India TRAI,2006
• The mobile industry has reached 90.14 million
  subscriber and reflect 72.62 increase over the
  previous year
• Fixed line also increased 8.62 and reached 50.17
  (m) by the end of March, 2006
• The Internet subscriber base stood at 6.93
  million with 25 increase from 2006s 5.55
  million
• Nation wide, 14 of population gained access to
  telephone lines and 1 in rural area
• Only 1.92 telephone access in the period of 1948
  1998
• Nation wide, India has 148 telecommunication
  service providers and 28300 telephone exchanges
  in the network
• Bharat Sanchar Nigam Limited (BSNL), Reliance,
  Bharti Telecom, Tata Indicom, Hutch, MTNL, and
  BPL are 7 largest telecom operators in the
  country

19
Telecommunications infrastructure

• Telecommunication policy
• Before 1991, telecom was provided by state-owned
  monopoly- a division of the Department of
  Telecommunications- a division of the Ministry of
  Communications Dossani,2002
• As luxury goods -- the Sixth Plan 1979, The
  primary need of the people is food, water and
  shelter. Telephone development can wait
• The National Telecom Policy of 1994 - Turning
  point of Indias telecom reform
• National Telecom Policy of 1999, telecom sector
  has started its true reform and picked up the
  momentum
• Resolve three major hurdles for the sector
• Opening of data services to private investment
  Allowance to value added services to private
  investment Reducing the license fees to the
  service providers

20
Broadband growth

• Worldwide broadband has surpassed 215 million
  subscriptions in 2005 Press_release,2005
  according to Computer Industry Almanac Inc
• In U.S, alone, the subscriber has grown from 5
  million in 1999, 67 million in 2002 and close to
  200 million in 2006. With other emerging
  economies such as China and South Korea,
  demonstrating tremendous growth in recent years,
  broadband subscription Lackluster in India -
  less than 2 of household of the countrys 71
  million cable TV receivers are subscribing to
  broadband services Special_Report,2007
• Cable TV in India is booming (16 growth in 2006
  and US4.3 billion of turn over) but less than
  US 100 million has been spent on digital network
  services
• Several key projects that intended to link major
  hubs in Tamil Nadu, Gujarat, Andhra Pradesh,
  Karnataka and Maharasthra had started in 2000
  BII,2000, the progress had suffered setbacks
• Estimate of coverage of 10 million households
  would require about US 2B of investment and that
  capital demand is far exceed the current cash
  flow affordability of local cable operators (LCO)
• The most regulated markets, and combined rules
  and regulations at national and state levels
  effectively deterred foreign investment to expand
  into the broadband arena.

21
Fiber optical growth

• The market of fiber optical networks was
  approximately 170 million in 2002 and it is
  growing rapidly in India Sivarajan,2004
• Due to low bandwidth requirement, the network
  deployment were mostly DWDM transport systems and
  major cities in the country are interconnected
  with bandwidth 10-20 Gbps
• Before 2000, the fiber optical networks were
  provided by state-owned monopolies including
  BSNL, MTNL and VSNL
• Opening of the telecom sector - a number of new
  players started to compete in the optical
  bandwidth services
• 400,000 km coverage of BSNL
• Reliance has optical backbone covering of
  60,000km
• Tata Group, through control stake in VSNL has
  local loop services in six states
• Gas Authority of India (GAIL) built a nation wide
  DWDM along its pipelines covering 6000km service
• RailTel, a subsidiary of India Railway also built
  out a 11,000km fiber optical network
• According to Global Finance Chaze,2001,
  starting from 2001, four major optical carriers,
  including Bharti, Reliance, Dishnet DSL and VSNL
  (Tata), have planned total of US 14.8 billion on
  future optical network expansion

22
Wireless network

• The fastest growing segment in telecommunication
  in India
• As The Times of India reported on April 1,
  Indias mobile subscription has crossed the mark
  of 150 million and continue to add millions of
  new subscribers every month
• In January of 2007, a net of 6.81 million of
  Indians started to use their new cell phones.
• In 2006, the monthly subscriber increment was
  about 5 millions per month
• 2 millions average from 2003 -2005
• India is standing at the fourth with total cell
  phone subscription in the world
• Behind China (450 million), U.S (235 million) and
  slightly shy of Russia (154 million)
• However, the mobile tele-density of India is at
  15 of population and more lagging behind Russia
  (112), U.S (79), and China (35) .
• Currently Indias cellular services consist of 42
  networks and 21 telecom circles. That represents
  USD 4B and the largest service providers include
  Reliance, Hutch, Vodafone and Hinduja Group.
• While wireless subscription experiencing
  explosive growth in India, however, the growth
  mainly concentrated in the urban area.
  Penetration to the rural area is still low as a
  result of higher capital investment required in
  the remote area and the affordability difference
  between the urban population and rural
  population.

23
Internet usage

• In 2005, the world wide internet user has
  surpassed 1 Billion with U.S., China, Japan,
  India and Germany as the leading nations
  Press_release,2006
• India reached 50.6 million users but the growth
  appeared to be stalled in 2006
• The first consumer ISP service was introduced in
  1995 by the state owned VSNL (November1998)
• India opened ISP service sector for private
  providers
• By telecom liberalization, private ISPs free of
  licensing fees allowed to set their own tariffs
  setting up their own international gateways
  Chawla,2002
• 180 ISPs have been emerged to the market place,
  yet 10 of ISPs provides about 90 of internet
  services
• State-run BSNL and MTNL are the leaders of ISP
  market and continue to demonstrate a steady
  growth of the subscriber base

24
Computer industry

• In 2005, PC used in world wide has reached 900
  million units (India has 16.98 million) -
  Computer Industry Almanac Press_release,2006
• Commercial desktops far exceeded consumer
  desktops and portable PCs
• The server market in India has also experiencing
  double digit growth in recent years -2005, the
  server market grew by 30 Garter
• Server market in India also grew by 23 with US
  532.2 million in 2006 research shown -
  CXOToday.com Staff_Writer,2007
• More than 100, 000 units of servers sold with HP,
  IBM, DELL and Sun lead the way
• Indias PC market is dominated by major brands
  such as HP, HCL, Lenovo, Dell, LG.
• Consumer desktops growth has been hanging around
  at low single digit (2 from 2005 to 2006)
• Reflect the IT demand landscape in the country
• IT outsourcing powerhouse, India business use of
  computers is the main driver to the market

25
Computer manufacturing capacity

• MNCs such as IBM, Dell and HCL have started to
  form partnerships in India
• Missing of key technologies to produce majority
  of the PC components domestically
• Local PC industries quickly turned to the MNCs as
  their assemblers
• There are hundreds of those MNC partners across
  India, and provide local markets with a variety
  of MNC branded PCs
• Also hundreds of small PC assemblers that serve
  the second tier of market with unrecognizable
  brand names
• With their lower cost, those assemblers, as some
  estimates, could supply up to 55 of whole PC
  market in India
• The emerging 10000 Rs (US 100 - US 300)PC
  caused a lot of excitement and cheered as the
  dawn of Indias inexpensive computing
  Singh,2006
• Domestic PC manufactures
• Novatium Solutions in Chennai
• HCL Infosystems in New Delhi

26
Software industry

• Worldwide technology and related services
  spending crossed USD 1.5 trillion in 2006 (7.7
  over 2005)
• The Indian software industry is growing at about
  28 in FY2007
• Total revenue is expected to exceed USD 47.8
  billion(10X over the aggregate revenue of USD 4.8
  billion in FY1998)
• Direct employment is likely to cross 1.6 million
• Service and software exports remain the mainstay
  of the sector
• FY07 export growth likely to beat forecasts and
  exceed 32 percent
• US and the UK - dominant markets, contributing to
  67 and 15 of total exports respectively
• IT services exports (55-57 of total exports)
  growing at an 36, reaching USD 18.1 billion in
  FY2007
• Total exports for this segment are expected to
  beat USD 8.3 billion (FY 2006-07)
• Increasing traction in offshore product
  development and engineering services is
  supplementing Indias efforts in own IP creation

27
Overall Assessment of IT Capability

• India - Strong Growing IT Capability with uneven
  urban rural balance
• India - Developing IT Infrastructure with lagging
  investment

28
Attractiveness IT Strategic Perspective

• India Very attractive from global sourcing
  perspective in short run (5 years)
• India Be patient from global market perspective
  in long run (10 20 years)