INDIA ECONOMIC DEVELOPMENT AND BUSINESS OPPORTUNITIES Arun Maira The Boston Consulting Group Barcelona November 22, 2004

INDIA: PAST, PRESENT, FUTURE Phase 1: The Past Phase 2: The Present Phase 3: The Future 17th largest economy 12th largest economy 3rd largest economy US $ Mn 30000 CAGR = 3.9% CAGR = 5.1% Expected CAGR = ~ 9% 25000 15000 10000 5000 2000 1000 CAGR(1) = 8 % 400 Tenth five year plan (2002-2007) Note: CAGR = Compounded Annual Growth Rate Source: Industry estimates

INDIA HAS REGISTERED THE FASTEST GROWTH AMONG ALL MAJOR DEMOCRACIES IN THE RECENT DECADE Phase 2 India has the fastest growth among all democracies having GDP > $ 100 Billion Annual GDP growth rate India Mexico Finland France Germany Source: 2002 World Development Indicators Report (data for 1990-2000, average annual percentage growth)

BY 2050, INDIA IS PROJECTED TO BE THE 3RD LARGEST ECONOMY IN THE WORLD Largest economies in 2050 GDP in 2050 (US$ Bn) Huge gap between three largest economies and the next few India to overtake France in 2018 Source: Goldman Sachs Economic Paper # 99, BCG Analysis

Median age of population in the OECD countries is rising ... POPULATION IN SOME COUNTRIES IS RAPIDLY AGEING Problem Most Pronounced in the Developed World Median age of population in the OECD countries is rising ... Median age (year) (Average for OECD countries) ...this will have several socio-economic implications (select examples) Shortage in workforce Potential decline in growth rates Increase in wage rates for workers Pressure on social security and pension systems Increase in services to the older population Source: Scarpetia and Blöndal; United Nations Population Division, World Population Prospects, The 1998 Revision; BCG analysis

THE FUTURE DEMOGRAPHIC MAP Potential surplus population in working age group (2020) Germany -3 Mn UK -2 Mn Russia Czech Republic 0Mn -6 Mn -1 Mn Ireland Turkey -17Mn France -3 Mn Iraq 2Mn China US -10 Mn 2Mn Israel -9 Mn Japan Spain Iran Pakistan -3 Mn -2 Mn 0Mn 5Mn 3Mn 19 Mn 7 Mn Philippines Italy 47 Mn 5Mn 4Mn Bangladesh Mexico Egypt India 4Mn Vietnam 1Mn Malaysia 3Mn 5Mn Indonesia Brazil -0.5 Mn Australia Note: Potential workforce surplus is calculated keeping the ratio of working population (age group 15 – 59) to total population constant and under the assumption that this ratio needs to be broadly constant to support economic growth. Therefore, India will have 47 Million more people in the working age group/total population by 2020 compared to today, while France will have a deficit of 3 Million people in the working age group compared to today. Source: U.S. Census Bureau; BCG Analysis

INDIA WILL CONTINUE TO HAVE A GROWING POPULATION TILL 2050 AND BEYOND Projected population growth rates Net population Bn people India: Continuing to grow upto 2050 China: Declining after 2032 Brazil: Declining after 2050 0.2 G6:Declining after 2050 Russia: Already declining 0.1 Source: Goldman Sachs Economic Paper # 99, BCG Analysis

IN 2010-2030, LARGEST SHARE OF INDIA`S POPULATION WILL BE IN THE WORKING AGE GROUP Resulting in a Favourable “Demographic Bulge” India Demographic Profile (2020) China Demographic Profile (2020) France Demographic Profile (2025) Age group Age group Age group 60 40 20 60 40 20 3 2 1 Mn people Mn people Mn people 20 - 35 age group : 325 mn people (~25 %) 20 - 35 age group : 308 mn people (~21 %) 20 - 35 age group : 11 mn people (~17 %) Source: CII Conference 2002; CSFB Report; UN Population Division; BCG Analysis Female Male

ECONOMIC GROWTH BECOMING MORE INCLUSIVE Level of affluence steadily increasing in India Distribution of people by income group (1995 vs 2002 vs 2007) Number of people (million) 1099 998 886 Middle to High Additional 283 mn people from '95 to '07 Lower Middle Additional 185 mn people from '95 to '07 Low Note: Categorisation of households on the basis of income (Rs pa) at 1995 prices: Low : <=22,550; Lower middle : 22,501-45,000 ; Middle to high : >45,001 Source: Statistical Outline of India, 2002

DEMAND ALSO RISING IN RURAL INDIA Rural India consuming a high share of many “non essential” consumer goods % Share for 2000 Rural Urban Source: NCAER 1999-00; Literature review Source: NCAER 1999-00; Literature review

Bubble size corresponds to GDP size INDIA TO BE 3RD LARGEST ECONOMY, BUT WITH RELATIVELY LOW PER CAPITA INCOME Pattern of Growth Not Witnessed By Any Other Country GDP vs GDP per capita in 2002 GDP vs GDP per capita in 2050 GDP (US$ Bn) GDP (US$ Bn) China US US India Japan Italy Germany France Germany India China Russia Italy UK Brazil Japan Brazil Russia France UK GDP per capita (US$) GDP per capita (US$) Bubble size corresponds to GDP size Source: Goldman Sachs Economic Paper # 99, BCG Analysis

TWO INDIAS: ONE COMPETING INTERNATIONALLY; THE OTHER BEHIND IMPLICATIONS "COMPETITIVE INDIA" PROVIDES OPPORTUNITIES IN INTERNATIONAL TRADE AND BUSINESS LARGE POOL OF LOW COST RESOURCES YET TO BE TAPPED THE CHALLENGE AND BENEFITS OF 'INCLUSIVE DEVELOPMENT' POOL OF LOW COST RESOURCES INDIA SHINING THE WORLD EXTENSION OF BENEFITS OF GLOBALISATION

Comparative salaries of an IT engineer Comparative salaries of an MBA INDIA OFFERS EXCEPTIONAL VALUE AT SIGNIFICANT COST ADVANTAGES Comparison of Manpower Costs Comparative salaries of an IT engineer Comparative salaries of an MBA $ pa $ pa 80,000 7,500 Source: Literature Survey

INDEPENDENT SOURCES CONFIRM INDIA IS BEST IN QUALITY AND QUANTITY OF PEOPLE FOR GLOBAL SERVICES Surplus India Indonesia Mexico Philippines Projected workforce in 2020 Brazil Malaysia Israel Turkey Ireland Russia China Shortfall Low People strength Productivity/quality English language skills (1) Cost High Note: Pakistan, Bangladesh and Vietnam have not been represented for lack of reliable data on productivity and cost of service employees Over 50% of shortages expected from English speaking countries Source: World Competitiveness Yearbook 2001, Britannica yearbook, Literature search; BCG analysis

SOMEDAY REAPING WHAT YOU SOW Vertical integration Small volumes, but growing Logistics & infrastructure problems INDIA'S LEGACY MASS MANU- FACTURING REMOTELY PROVIDED SERVICES Small volume, high variety, low cost mfg INDIA'S OPPORTUNITIES  Domain knowledge Software capabilities Remote delivery possible INDIA'S STRENGTHS

INDIA EMERGING AS THE " SERVICE CAPITAL OF THE WORLD " India already providing knowledge-based services in several sectors Remotely delivered services Import of customers to service in India Transaction processing Design and analysis Research and development Value added tourism Leisure tourism Industry Information Tech Pharma/Healthcare Education Services Auto/ engineering Chemicals Financial Services                       Source: BCG Analysis