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Disclaimer
This Report has been published for
information and illustrative purposes
Authors
Rajat Agarwal
Multinationals and India
only and is not intended to serve as
advice of any nature whatsoever. The
Tim Cooper A plan for progress
information contained and the Svenja Falk
references made in this Report is in
good faith, neither Accenture nor any Mamta Kapur
of its directors, agents or employees
give any warranty of accuracy nor Raghav Narsalay
accepts any liability as a result of
reliance upon the information, advice, Armen Ovanessoff
statement or opinion contained in this
Report. This Report also contains Dinu Poonacha
certain information available in public
domain, created and maintained by Mark Purdy
private and public organizations.
Aarohi Sen
Accenture does not control or
guarantee the accuracy, relevance,
timelines or completeness of such
information. This Report constitutes a
view as on the date of publication and
is subject to change. Accenture does
not warrant or solicit any kind of act or
omission based on this Report.
Foreword
The world has changed significantly
over the last couple of years.
Businesses in developed and emerging
economies have been shaken by the
global downturn. Governments, in turn,
have scrambled to steady their
economies and put them on a path
towards recovery, using fiscal stimuli
and other policy instruments. Now, the
light at the end of the tunnel is
beginning to emerge and we are seeing
pockets of recovery in different parts
of the world.
The Indian economy will face a
changed global landscape as it enters
this recovery period. Emerging market
economies will acquire even greater
significance as the global economy
becomes increasingly multi-polar. India
will have to compete more fiercely
with its emerging-market peers, many
of whom will be more competitive
than before. In the political sphere,
new governments have recently taken
office in different parts of the
world—presenting new opportunities to
address long-term challenges such as
climate change and international
security threats.
As this new landscape takes shape,
India has the opportunity to position
itself as a leading international hub of
investment, human capital and
innovation—pushing ahead of rival
destinations in both developed and
emerging economies. Multinational
Companies (MNCs) are likely to feature
prominently in pursuing this ambition.
In the past, we’ve seen India’s ability to
attract foreign direct investment from
some of the largest companies in the
world. MNCs have now embedded
themselves as a part of India’s
economic fabric. Looking forward,
MNCs are looking to play a pivotal role
fostering the growth of small, medium
and large domestic enterprises across a
range of industries and linking them
into global supply chains.
But more is possible, and more is
required. This report, which draws on
interview-based research conducted
jointly by Accenture and the
Confederation of Indian Industry,
reveals some of the ongoing challenges
facing multinational businesses in
India and underscores priority areas for
reform—such as rationalizing taxation,
02
References
1 23
safeguarding intellectual property and
reducing bureaucracy, amongst others.
It also reveals some of the new growth
sector opportunities in India, such as
2
biotechnology, renewable energy and
emerging technological sectors like
cloud computing and digitization. Last,
3
it highlights those key areas that can
contribute to enhancing the nation’s
overall productivity and how India can
4
position itself at the heart of the global
economy by promoting itself more 5 Labour Organization.
effectively.
As we look towards the future with the 6 30
same optimism that has driven India’s
growth to date, there is a fresh 7
opportunity for government and
business in India to work together to
solve some of our common domestic
8
challenges and build a path towards
sustainable growth and prosperity. But
there are no guarantees or 9
entitlements about the future, only
possibilities. Our vision is to help India
engage with the global context around
10
us, positioning India as the preferred
international destination of investment 11
and business activity. We hope this
report will help outline the cooperative
12
steps that can be taken to make this
vision a reality. 13
14
Harsh Manglik
15
16
17
18
19
20
21
22
Based on the 9 years of FDI statistics International Energy Agency.
published by Department of Industrial 24
11th Five year plan of Ministry of
Policy & Promotion, Ministry of
New and Renewable Energy,
Commerce, Government of India.
Government of India.
Economist Intelligence 25
Technopak Advisors, ‘India
Unit/Accenture survey, 2009.
Healthcare Trends’ 2009.
World Economic Forum Global 26
IBEF, August 2009.
Competitiveness Report 2009-10,
27
www.weforum.org IBEF, July 2009.
Accenture analysis. 28
LABORSTA database, International
United Nations Conference on Trade
29
and Development (UNCTAD). UNESCO.
Ibid. NASSCOM Strategic Review 2009.
McKinsey, ‘Building India: 31
World Bank, ‘Unleashing India’s
Accelerating Infrastructure Projects’, Innovation’, 2007.
2009. 32
Zinnov, ‘R&D Innovation Council’,
India Brand Equity Foundation (IBEF), August 2008.
August 2009. 33
Evalueserve (2004).
Database of the Centre for 34
Monitoring Indian Economy (CMIE), Migration Policy Institute database.
August 2009. 35
Indian Ministry of Tourism, ‘Tourism
Reserve Bank of India, op. cit. Statistics at a Glance’, 2008.
Planning Commission, Government of
India.
CMIE, op. cit.
IBEF, September 2009.
Rabobank, ‘Indian agri-biotech
sector: Emerging scenario, issues and
challenges’.
CII/KPMG report, ‘India Pharma Inc. –
An Emerging Global Pharma Hub’,
2008.
IBEF, June 2009.
UNCTAD, ‘World Investment Report:
Transnational Corporations,
Agricultural Production and
Development’, 2009, p. 141.
CMIE, July 2009.
CMIE, August 2009.
CMIE, August 2009.
Automotive Component
Manufacturers Association of India,
‘Global Competitiveness of Indian
Auto Component Industry & Its
Sustainability’, 2009.
Ernst and Young, ‘Renewable Energy
Country Attractiveness Indices’, Q4
2007.
31
Conclusions: Overcoming the
challenges to growth
With greater integration into the world
economy, the effectiveness of
policymakers in shaping and
implementing policies to increase
flows of people, capital, products and
services will, as we have seen, be
fundamental to securing India’s future
growth. To climb the competitiveness
ladder, it is crucial for India to focus
on the following areas:
! Improve the overall business
environment by removing the barriers
and hurdles that may hinder MNCs and
domestic businesses as they seek to
achieve sustainable growth in India
! Reduce dependence on, and increase
the value of, traditional sectors of the
economy (e.g. agriculture) as well as
developing new, higher-value-added
industry sectors such as healthcare,
renewable energy and new
technologies
! Improve India’s productivity by
broadening its skills base beyond its
current centers of excellence and
fostering innovation on a national
scale
! Place India at the heart of the multi-
polar world by increasing the impact it
achieves on the global stage through
linking SMEs to global supply chains,
tapping into the Indian diaspora and
making better use of India’s cultural
heritage
MNCs must play a critical role in
achieving these objectives by nurturing
a globally integrated business
ecosystem driven by knowledge,
technology and talent. Several MNCs
have established globally significant
businesses in India by setting up
manufacturing and R&D facilities,
building and serving consumer markets
and establishing India as an export
base. They have complemented efforts
of local governments, institutions and
businesses in imparting skills to local
workforces and by promoting a culture
of innovation. There is great scope for
more to be done.
30
Contents
Executive summary 04
For policymakers, the Achieving success in the next phase of Introduction 08
India’s growth story will require closer
priorities must be cooperation between businesses and
policymakers than ever before. As the
Chapter one: Laying the foundations 10
! To take a lead in global forums in
order to embed India at the heart of world emerges from recession, this
new model of economic and social Chapter two: Combining old and new 14
the world economy
governance will be replicated across
! To simplify internal bureaucratic the globe. India has a number of Chapter three: Building capabilities for the future 20
processes, to rationalize taxation, and strengths that position it well to lead
to effectively police intellectual this new global order. Doing so will Chapter four: Projecting India 26
property rights require action on a number of fronts,
from the local to the international,
! To encourage the free movement of
with a focus on scaling activity more
Conclusions 30
talented labor, and to invest in
effectively and consistently. But with
transport, technology and social
commitment from business and
infrastructures
government alike, there are few limits
! To focus policy on encouraging to India’s potential.
higher-value in traditional sectors
(agriculture, manufacturing) and to
invest in innovation
! To align education more closely
with employment opportunity, and to
involve business leaders in shaping
human capital strategy
For MNCs the opportunities
for growth can be realized
by
! Working with local partner
organizations and government to raise
skill levels and invest in higher value-
chain activities
! Empowering rural populations to
open up untapped labor and consumer
markets
! Adopting imaginative responses to
India’s diversity, using technology to
scale operations
! Exploiting India’s advantages of
language and demographics to test
innovative business models
! Co-operating with government to
make training and education better
aligned with needs
03
Executive summary
The world has been shaken by the economic
downturn. Developed and emerging
economies alike have felt the full force of
its impact. India’s economy has seen a
slowdown after nearly a decade of
unprecedented growth, as its companies
have been vulnerable to the varying
fortunes of their customers, partners and
suppliers around the world. As we begin to
emerge from this crisis, there is a new
sense of urgency amongst business leaders
and policymakers to address long-term
challenges and exploit fresh opportunities.
The Indian economy will enter the recovery
period facing changed global competitive
dynamics, particularly from other fast-
developing economies, as well as the
ongoing need to confront persistent
domestic challenges in areas such as
04
infrastructure, education and healthcare.
However, in the political sphere there are
new administrations in many countries and
a re-elected Indian government unimpeded
by coalition politics. This presents a further
window of opportunity for businesses and
policymakers to work together to develop
constructive and collaborative solutions
that capitalize upon the country’s
strengths, develop new opportunities and
address the obstacles to achieving India’s
social and economic growth ambitions.
29
Finally, promoting the cross-fertilization
of knowledge and capabilities can drive
new, innovative business models and
attract investment. For example, while
India’s growth to date has been driven
in large part by the IT sector, there are
opportunities for MNCs in adjacent
industry sectors that can capitalize on
this e.g. advertising and digital media.
In developing these industry sectors,
India will not only generate increased
economic growth but also enhance
even further its brand overseas. The
India Brand Equity Foundation has
already undertaken extensive efforts to
promote ‘brand India’ abroad: the
talent, markets, growth and
opportunity that exist in the country.
To integrate itself further into the
global economy, India needs to build
on this and promote India as the new
culture capital of the world and hub of
new digital industries.
Placing India at the heart of the global
economy means building on its
existing success in this area: in being
open, in being an attractive location
for investment and in promoting a
strong brand around the world. The key
for India is to realize that other
Figure 10: International tourist arrivals, 2008
% of total international tourist arrivals
France
US
Spain
China
Italy
UK
2.76
Ukraine
Turkey 2.71
Germany 2.7
2.45
Mexico
India 0.58
Source: Indian Ministry of Tourism; ‘Tourism Statistics at a Glance 2008’
28
emerging economies are catching up
and starting to exploit their cultural
industries and diaspora population to
great effect. Our analysis identifies the
following levers to realizing growth in
this area:
! Providing incentives for creative
industries and talent to locate in India,
building on India’s burgeoning creative
sectors to generate growth and
strengthen India’s brand
! Setting up a government initiative
to target and leverage the Indian
diaspora more effectively so that they
can act as ‘ambassadors’ for
investment opportunities, particularly
in new technology sectors
! Using MNC supply chains to connect
local enterprise and global businesses
8.6
6.29
6.21
5.75
4.63
3.28
The importance of
multinational companies
Multinational companies (MNCs) will
feature prominently in efforts to
overcome these challenges and drive
the next phase of sustainable
economic growth, not least by driving
inward investment, nurturing talent
and encouraging innovation. For
example:
Investment: MNCs have invested over
US$100 billion in India since 20001,
with foreign direct investment (FDI)
inflows having increased at a rate of
about 30 percent as compared to 14
percent for all emerging markets.
Talent: MNCs have been at the heart
of up-skilling the Indian workforce,
making it one of the most competitive
talent pools in the world in a number
of industries (especially information
technology). In a recent Accenture
survey of business leaders around the
world, India ranked second only to the
United States in terms of the
attractiveness of its top management
talent.
2 mid-2008—the country still does not
Innovation: a 2007 study by the World
Bank found that 300 MNCs had set up
R&D and technology centers in India,
accounting for 60 percent of the R&D
off-shoring industry. With these centers
comes increased economic growth and
spillover effects into the wider Indian
economy (e.g. through knowledge
transfer and the flow of new skills).
In recent years, the relationship
between India’s domestic businesses
and multinationals has proved to be a
unique competitive advantage for the
nation, generating a creative dynamics
of knowledge transfer, investment and
innovation. As a result, India’s businesses
are arguably the best adjusted to the
global economy among emerging
economies, with a high proportion of
higher-value and service-sector
contributions as well as an inclusive
and global mindset.
Further potential
More, however, is possible. Although
India’s recent growth has been
impressive—second only to China since
rank as high as it could on comparisons
of national competitiveness. For example,
according to the World Economic
Forum, India ranks only 49th out of the
world’s most competitive economies—
23rd when compared only to other
3
emerging economies. And while a
comparable number of the world’s fifty
largest companies operate in China
and India, their combined turnover in
China is three times their turnover in
India.4 This report attempts to
understand and suggest ways to
address this shortfall, to set out how
the Indian economy can be best
aligned to encourage these investments,
and to show how MNCs can support
and amplify India’s next phase of growth.
Major new research
The report draws on a major research
project on MNCs operating in India
conducted jointly by Accenture and the
MNC Council of the Confederation of
Indian Industry. Business leaders from
more than a quarter of the MNCs in
India were interviewed to gain first-
hand insight on some of the challenges
they face and the broader role of
MNCs in India’s journey towards social
and economic growth.
05
Key areas for growth
Based on Accenture’s interviews with
senior business leaders, supplemented
by extensive research, this report sets
out four key areas where action is
needed to put India on a path to more
sustainable, inclusive growth:
Reinforce the foundations of growth:
enhance the growth prospects of
businesses operating in India by
creating a more predictable and
enabling environment for business
! Simplify the bureaucratic experience
e.g. enhance coordination between the
central, state and local governments
on approval processes for foreign
businesses both before and after set-
up of operations
! Rationalize taxation e.g. improve
awareness and communication with
business about the mechanisms that
exist to reduce transaction costs in
taxation and bring in more
predictability to the tax system
! Safeguard Intellectual Property (IP)
e.g. establish a common body or
taskforce to centralize control over the
06
enforcement of IP laws, as well as
improving the efficiency in the
administration of IP rights
! Reduce barriers to the free flow of
people e.g. simplify immigration and
processes for obtaining visas for new
entrants to India
! Improve infrastructure e.g. upgrade
railway stations and existing
technologies, including creating India’s
first high-speed rail network between
major metropolitan cities
Realize growth in new sectors:
capitalize on India’s potential in new
industry sectors as well as improving
the value addtion in traditional sectors,
helping the economy move to a more
sustainable growth model
! Reduce dependence on, and increase
the value of, agriculture e.g. increase
support for agricultural interventions
(such as irrigation)
! Develop both basic and high-value
manufacturing e.g. MNCs should play a
significant role in both shaping and
delivering the training needed to
supply basic manufacturing workers
(see next chapter on education) with
leading-practice knowledge, while
driving advanced engineering skills
! Invest in sunrise industries, such as
renewable energy, healthcare and
pharmaceuticals, new technologies
(e.g. cloud computing) and cultural
industries (e.g. design, food and
tourism)
Improve current levels of productivity:
make better use of India’s current
assets and capabilities to enhance its
competitiveness in key areas of the
economy, such as skills and innovation
! Promote skills development e.g.
MNCs should continue to work with
local education establishments to
shape curricula and ensure that skills
are relevant to the workplace
! Increase the proportion of the
population engaged in education and
productive employment. Policymakers
and employers can bring more women
into the workforce by embracing
flexible working options and putting in
place modernity provisions
But beyond this opportunity to reach
new consumers, the diaspora
population represents a significant
source of potential talent, many of
whom have been educated in Western
economies and possess the skills that
MNCs looking to locate in India will
value highly. Indeed, many MNCs in
India have sought to bring the Indian
diaspora back into leadership positions
where they can combine their
knowledge of Western business
practices and working cultures with an
appreciation for local norms. This helps
ensure that the Indian economy keeps
pace with the latest developments in
Western business education as well as
continuing to represent a highly
attractive location for other MNCs
looking to establish operations in India.
The Indian diaspora can also act as
‘ambassadors’ for their home country
through promoting greater
understanding of the opportunities
within the Indian economy for
investment and growth. By marketing
actively investment opportunities to
the diaspora, MNCs can tap into new
sources of growth as well as spreading
the word to a larger potential pool of
investors. Indeed, this has already
happened in the context of the IT
industry, where the government made
a conscious effort to communicate and
interact with the global Indian
diaspora with hopes of encouraging
investment in the country from those
who have emigrated and become
successful in other nations. A similar
approach must be taken in respect to
India’s new growth industries,
particularly those related to technology
where the existing reputation is strong.
Exporting India’s culture:
Bollywood and beyond
India’s business environment is one of
the most attractive in the emerging
world, not least due to the high
number of English speakers as well as
the global mindset exhibited by many
Indians. However, other emerging
economies are catching up. Increased
investment in education in many
emerging economies means that
India’s traditional advantage here is
being eroded. India needs to capitalize
on this advantage while it still can.
Doing so will require India to focus on
how it can build on its cultural
heritage and creativity. For example,
other emerging markets have taken
steps to leverage culture as a means of
making their living environment more
attractive to MNC employees. Abu Dhabi
has signed deals to develop offshoots
of both the Louvre Museum in Paris
and the Guggenheim Museums in New
York and Bilbao; Singapore is planning
to have the Cirque du Soleil play a key
role in the new Sentosa cultural
district. More active promotion of
India’s rich cultural heritage could also
help develop its tourism industry.
India’s share of international tourist
arrivals globally and in the Asia Pacific
region during 2008 was 0.58 percent
and 2.92 percent respectively. Within
emerging economies, these figures put
India well below China and Mexico
(see Figure 10). In spite of the presence
of historical and cultural sites across
the country, during 2008, only five of
India’s 28 states accounted for around
67 percent of the total foreign tourist
visits into India.35
27
Chapter four:
Projecting India
India owes much of its recent
economic growth to its open position
within the global economy, which has
seen significant levels of inward
investment and MNCs choosing India
as a location for a number of business
functions. India has been among the
most attractive destinations for
investment worldwide, ranking second
only to China on the FDI Confidence
Index in 2007.
However, if India is to maintain and
build on this position of strength, it
needs to exploit further opportunities
to adopt a more open position and
integrate itself within the global
economy. At the political level, India
should utilize the opportunities arising
from its expanding global footprint of
interactions and relationships with the
rest of the world to encourage the
exchange of knowledge and skills.
Policymakers can take a lead by
ensuring that India is at the heart of
international forums of decision-making
(e.g. the G20, the Doha round of trade
talks and the Copenhagen Summit) as
well as making sure that its businesses
are fully integrated into global supply
chains and investment flows.
26
Beyond this, there are three areas
where action can be taken in order to
help realize the next phase of
economic growth. MNCs can act as
facilitators in each of these areas.
Integrating local enterprise
with global business
India has a wealth of small- to
medium-sized enterprises (SMEs) that
can collectively generate significant
levels of growth to the Indian
economy. However, the key to realizing
their potential is to connect them to
global supply chains through MNCs.
Given India’s size and the number of
small- to medium-sized enterprises
(SMEs) that have developed (particularly
in rural areas), integrating these
enterprises as part of a wider business
ecosystem offers the potential to
increase growth at both local and
global level.
For example, Cadbury is supporting
Indian farmers with technical advice to
show them how to improve yields of
cocoa. Through this support, it is hoped
that Indian farmers can first achieve
self-sufficiency before starting to
export their products. The ambition is
to increase production from 10,000
tonnes a year at present to 150,000
tonnes by 2020, which would constitute
3 percent of global cocoa production.
Tapping into the Indian
diaspora
India’s population is one of its greatest
assets. While numerous steps are being
taken to improve the skills and
education of the domestic population,
the potential afforded by the huge
Indian diaspora population should not
be underestimated. With 20 million
people of Indian origin in 70 countries,
India has a pan-continental presence.33
Firstly, these populations represent a
significant consumer market in their
own right, as well as a potential
springboard to test products and enter
new markets in developed economies.
For example, Dabur India Limited,
which specializes in health and beauty
products, sells to customers in the
United Kingdom and United States,
owing to the large Indian populations
in these two countries (a combined
total of more than 2 million in 2006).34
! Overcome constraints to innovation.
Improving the networks between
innovation stakeholders (such as
business, government and academia)
and developing clusters can help scale
innovation over a larger area
Position India at the heart of the
global economy: ensure that India
continues to act as a key political
player on the global stage and realizes
the full benefit of international flows
of investment, talent and technology
! Bridge the gap between local
enterprises and global supply chains
e.g. ensure that rural infrastructure
and supply chains are of sufficient
quality to facilitate the efficient
transport of goods
! Tap into the Indian diaspora e.g. set
up a government initiative to target
and leverage the Indian diaspora more
effectively so that they can act as
‘ambassadors’ for investment opportunities,
particularly in new technology
! Capitalize on India’s culture e.g.
provide incentives for creative
industries and talent to locate in India,
building on India’s burgeoning creative
sectors to generate growth and
strengthen India’s brand
This report demonstrates how MNCs
are already contributing to growth in
these areas, as well as how they can
continue to build on best practices and
help generate growth in the future. The
report also sets out recommendations
for policymakers that will help create
the right regulatory and administrative
environment for inclusive growth.
Conclusions
In this new era of changed global
dynamics, what will be important for
India as it tries to unleash the next
phase of economic growth? The
following imperatives should guide
India as it embarks on this journey:
! Move existing traditional industry
sectors up the value chain while
exploiting potential in new sectors
! Build on the existing excellence and
reputation for IT to move into new
technological sectors e.g. cloud
computing and digitization
! Make best use of India’s
demographic and educational
advantages to better utilize its
workforce, particularly among the
female population and in rural areas
! Increase the productivity of the
workforce through enhanced education
systems and more support for innovation
! Capitalize on India’s open position
in the global economy (in terms of
political, economic and cultural linkages)
in order to maximize flows of FDI
These investments will pay dividends in
the future and set India on a path towards
sustainable economic growth. MNCs
will be crucial in all of this, not least in
terms of technology transfer, sharing
knowledge and skills, and growing new
markets. By working with policymakers
and as a part of the fabric of Indian
society, businesses can help achieve a
collective vision of prosperity.
07

Introduction
After a decade of unprecedented
growth, India faces new challenges in
the changing world economic order as
it emerges from the downturn. The rise
of the multi-polar world—where
economic power is increasingly
diffused across the global
economy—presents both a major
opportunity and a challenge to the
Indian economy.
While India has been at the vanguard
of the emerging markets that have
redrawn the world’s economic
geography, comparisons with other
economies confirm that India still
faces a number of challenges in
achieving greater competitiveness. For
example, according to the World
Economic Forum’s Global
Competitiveness Report 2009-10, India
ranks at 49th position. Even when
compared to emerging economies
alone, India still only ranks at 23rd
position (see Figure 1).
08
The role of MNCs in promoting
innovation
MNCs are involved in a number of projects
and initiatives to improve the innovative
capacity of the Indian economy, driving
economic growth and generating wider
spillover benefits in terms of increased
knowledge and skills transfer. This is
occurring in a number of ways:
Undertaking low-cost innovation:
Microsoft works to develop high-tech
offerings which help bring IT to the largest
possible audience, including the poor. For
example, one localization program,
‘Bhasha,’ has now made MS Windows and
MS Office available in 12 Indian languages.
Sharing hardware is a good way of keeping
costs down. To help people share PCs, the
Microsoft India Development Centre (MIDC)
has recently developed Virtual PC 2007, an
Figure 1: World Economic Forum (WEF) Global Competitiveness Report Improving India’s capacity to innovate
2009 –10 Rankings is critical to setting the country’s
trajectory of economic growth.
Emerging economies All economies Innovation capabilities attract
investment, generate greater returns
Singapore 1 4 and set a path for more sustainable
Hong Kong SAR 2 11 growth. India possesses many of the
raw materials to unleash innovation-
Taiwan, China 3 12 led growth and we have already seen
South Korea 4 19 great examples that place India in a
strong position among emerging
Qatar 5 22 economies. At the same time, there is
United Arab Emirates 6 23 no room for complacency. Concerted
efforts are required by policymakers,
Malaysia 7 24 educators and businesses across a
China 8 29 number of areas. Important levers for
change include the following:
Chile 9 30
! Nurturing an innovation
Czech Republic 10 31 ecosystem: clusters of innovation arise
India 23 49 from partnerships between academia,
business and financiers, all incentivized
by government policy
Source: World Economic Forum Global Competitiveness Report 2009 –10 ! Getting the scale right: technology
www.weforum.org can multiply the penetration and reach
of business solutions and best practice
ideas
application which allows a single computer
to run one or more virtual machines, each
with its own operating system.
Conducting world-leading research: Intel
uses India as a base for some of its most
complex innovation. Recently, a pioneering
microprocessor was developed by the India
R&D team.
Encouraging the entrepreneurial sprit: JCB
facilitates entrepreneurial activity in India
through its efforts to create self-employment
opportunities for over 5,000 people.
Consumer goods company Amway’s
approach encourages entrepreneurial
activity in the broader environment by
providing free and unlimited training to its
distributors to help them grow their
businesses. In 2007, over 29,000 training
sessions were held reaching over 1.5 million
Amway distributors.
! Positioning India as a test ground
for innovative business models: India
possesses the raw materials – including
a proven track record, English language
skills, an entrepreneurial spirit and
large, distinct and varied consumer
groups—to market itself as the world’s
pre-eminent test-bed for innovative
business models. As with the IT
services boom, MNCs would play a
critical role in bringing tremendous
technology, knowledge and capital
spillovers into the economy
25
Overcoming constraints to
innovative growth
Despite this progress and potential,
research activity by domestic Indian
companies remains low (see Figure 9).
According to World Bank statistics, of
the top 50 applicants for patents in
India between 1995 and 2005, 44 were
foreign firms. Moreover, the
innovations and patents emanating
from these research centers have
evolved almost in isolation from India’s
academic institutions. Further, as has
been discussed in chapter one, some
MNCs are reluctant to invest in R&D in
India because of perceived weaknesses
in intellectual property administration
and enforcement.
Scaling is also a critical issue. India has
sometimes been labeled “a graveyard
of good ideas” due to the large number
of innovative and successful initiatives
that are piloted or implemented
without reaching enough scale to
make a significant national impact.
Multinationals have played an
important role in developing successful
models that balance the benefits of
global scale and knowledge with local
insight and responsiveness. The best-
known examples include the successes
of consumer goods companies like P&G
and Hindustan Lever in developing
innovative business models that bring
global products to the most isolated
Indian communities in a locally
relevant way.
Looking forward across broader
industry groups, methods of achieving
scale include the development of
clusters of excellence around key
themes, and the utilization of
technology to multiply impact and
reach. Technology-based solutions are
replicable, scalable, cost-efficient and
consistent in quality. Moreover, the
application of technology seems
particularly well adapted to India’s
need for solutions that reach across
difficult terrain and long distances and
that can easily be tweaked to respond
to a diversity of languages and
cultures. Multinationals can play a key
role in developing and implementing
the technology solutions that can
connect India’s disparate success
stories and unlock the country’s
innovative potential.
24
Figure 9: Percentage of patent applications registered by domestic companies
(latest figures percent)
80 75% 74%
70 62%
60
50
40
30
20 18%
10
0
South Korea Russia China India
Source: World Intellectual Property Organization
With competitive pressures increasing
from around the world, there is an
urgent need for India to build a more
sustainable and healthy innovation
ecosystem for future growth. The
national government has recognized
some of this by tripling the R&D
allocation in the Eleventh Five Year
Plan (2007–2012) with the target of
bringing R&D investment to 2 percent
of GNP, closer in line with the average
for developed countries of
approximately 2.5 percent.
This investment requires buy-in from So while significant strides have been Figure 2: Percentage distribution of survey responses across sectors
all stakeholders, however, including made in recent years, there is still
government, business and academia. some way to go before India can truly
There are signs of progress, such as the 8% Banking and Insurance
take its place at the top table of globally 15%
National Entrepreneurship Network competitive economies. Going forward, Chemicals and Petroleum
(NEN), a non-profit initiative founded 15%
MNCs are crucial to the sustained 5% Communication and Entertainment
in 2002 to educate and support the economic growth of India, both in
Industrial Equipment and Systems
next generation of entrepreneurs in terms of driving inward investment
Consumer Durables and Other
India. Co-founded by five of India’s and through the potential positive 10%
8% Consumer Products
premier academic institutions and effects they have on education, skills
Food Products and Beverages
collaborating with over 280 Indian and innovation. This report analyzes
Automotive
graduate institutions, the NEN helps to the role of MNCs in the Indian
build entrepreneurship programs and economy, and the ways in which policy 15% 24% Business Services*
create a pipeline of young innovators. initiatives can be aligned to increase
More recently, the Confederation of co-operation between governments, Source: Accenture/Confederation of Indian Industry Survey
Indian Industry set up a committee to MNCs and all other stakeholders.
*Business Services include consulting, software,
establish long-overdue formal real-estate and housing services
The report is drawn from Accenture’s
communication between its members
extensive research into the growth This research and the resulting analysis
and academia. Further efforts are
opportunities facing India and the role outline opportunities for growth in
needed to include business in policy
of MNCs in realizing those four areas, and highlight the
discussions on education, training and
opportunities. In addition, this report challenges faced in each. These
national innovation capacity.
draws on in-depth interviews with key imperatives are set out in the chapters
Multinational companies can play an
executives from MNCs, officials from of this study, which look in turn at:
important role in these discussions,
the Government of India and other foundational factors for growth; the
bringing ideas and lessons learned
crucial stakeholders, undertaken in co- possibility for growth in new sectors;
from other countries.
operation with the Confederation of the drive to improve current levels of
Indian Industry (CII). The MNCs productivity; and the ways in which
involved in the study account for a India can position itself at the heart of
significant portion of revenues of the new multi-polar global economy.
MNCs in India and represent a true
cross-section of sectors (see Figure 2).
09

Chapter one:
Laying the foundations
Just as MNCs have been at the heart of
India’s growth story to date, so too
they will play an integral role in
creating the next chapter of economic
growth. MNCs can be key facilitators
of global economic integration and can
help link local and global supply
chains. However, policies must be
aligned to allow MNCs to function
effectively.
Over the past decade, India has
benefited from significant inflows of
Foreign Direct Investment (FDI). MNCs
have invested over US$100 billion in
India during the last eight years alone.
Between 2000 and 2007, FDI inflows
into India grew at a compound annual
growth rate of 30 percent, compared
to an average figure of 14 percent for
other emerging markets.5
However, the Indian economy still
faces a number of challenges that
continue to act as impediments to
investment and growth. Some of these
challenges include overly bureaucratic
approval processes for foreign MNCs
registering in India, as well as
difficulties in accessing talent pools
and critical infrastructure. These
10
The role of MNCs in education Addressing India’s human capital challenges
and maximizing the opportunities is both
Multinationals are undertaking initiatives complex and urgent. It requires leadership
in a variety of areas to help drive and commitment from government (at
increased productivity through education, national, state and local levels), business and
training and innovation promotion. Some civil society. It also requires innovative
of these are as follows: thinking to achieve results at speed and
scale. Beyond the mobilization of resources
Supporting basic, and high-value skill
and structuring of initiatives, it requires a
levels around the country: recognizing
cultural shift in India’s attitudes and
the need to improve basic IT skills across
approaches to learning, as well as its
the country, Microsoft set up Project
expectations from the workforce. Important
Shiksha (see previous section), which has
levers for change include the following:
given IT training to over 350,000 school
teachers. Intel has instituted programs to ! Identifying and measuring outcomes:
train India’s future software developers. improving productivity requires rigorous
The Intel Academic Community, which targets to be set at all levels of the education
works with universities in 72 countries, system, accompanied by transparent and
launched a Center of Excellence at the consistent performance measurement
MSRIT campus in Bangalore with the aim
of training 300 faculties from 155
! Aligning learning objectives: business
leaders, including from MNCs, must work
institutes of the Visvesvaraya
Technological University (VTU) as well as with policymakers in shaping the nation’s
human capital strategy, to ensure an
influencing the undergraduate curriculum.
challenges may explain India’s together to address these key
alignment of needs and objectives
comparative lagging behind the other challenges. The global economy is now Using technology to up-skill the
! Promoting inclusiveness: the urgency for
BRIC (Brazil, Russia, India and China) inching towards recovery, and financial workforce: Hindustan Unilever is
economies when measuring the markets are beginning to stabilize.
constantly working to keep its workforce progress in education and skill levels must
volume of FDI inflows. In 2008, India Many MNC executives will now begin
attracted US$42 billion in FDI, to scan the horizon for the most equipped with the latest skills. In 2007, cut across geographies, social groups and
compared to US$108 billion in China, attractive destinations for investment. Unilever introduced an ‘e-learning gender
US$70 billion in Russia and US$45 India has the opportunity to be a part
billion in Brazil (see Figure 3).6 of this next chapter of global platform, which offers 3,000 self-learning ! Creating the innovation mindset: India
investment and growth but only by courses over the internet, allowing them
To propel the Indian economy towards
addressing the outstanding obstacles
needs an education system that requires
a new phase of growth, policymakers
to business confidence. to be accessed by any Unilever employee, students to be critical in their thinking and
and business leaders will have to work
anywhere, at any time. resourceful in driving their own learning
Figure 3: FDI inflows into BRIC countries, 2005-08 (US$ billions)
Targeting under-employed segments of
120 India Russia Brazil China
108 the population: JCB, the UK-
100 headquartered manufacturer of
84 engineering vehicles and diesel engines,
80 73
72 70 reaches out to create employment
opportunities for under-employed part of
60 55
42 45 the workforce, such as retired army men.
40 35
30
25
20 19
20 13 15
8
0
2005 2006 2007 2008
Source: United Nations Conference on Trade and Development (UNCTAD)
23
maximize the reach and impact of
their efforts. For example, Microsoft’s
‘Shiksha’ project provides IT education
to school teachers, having already
made 350,000 teachers technology-
literate, able to utilize these skills in
their profession and capable of passing
them on to their students.
Growing the workforce
India’s productivity is further
hampered by the relatively small
proportion of the population that
graduates from the education system
into the skilled workforce. The IT
industry, which represents as much as
5.9 percent of the country’s GDP, still
employs only 2.23 million of India’s
750 million-strong working-age
population.30 Further, less than half of
female higher-education graduates
join the economically active population
(see Figure 8), and many of the highest
achievers in India’s schools continue to
seek work abroad, even if this trend
has recently slowed.
Action needs to be taken on several
fronts. For example, policymakers and
employers can bring more women into
the workforce by embracing flexible
working options and proper maternity
provisions. Training and education
must move beyond traditional systems
characterized by hierarchy to
emphasize critical thinking, personal
resourcefulness and teamwork.
Training and education courses should
allow participants to test their own
ideas and define their own problems to
solve. MNCs can play an important role
in bringing innovative learning
techniques and policy
recommendations from their disparate
experiences around the world.
It is in the interests of companies
across industries continuously to
improve the training of their workers,
and to invest in the development of
employees and service providers at
every skill level. The case studies in this
report highlight some of the initiatives
being carried out by multinationals in
India. In more enlightened companies,
innovative models are being utilized to
keep skills continually updated, such as
24-hour online training courses and
tie-ups with academic institutions. For
example, in 2007, Unilever introduced
an e-learning platform offering a range
of 3,000 courses accessible by
employees anywhere in the world, at
22
Figure 8: Economically active women in India as a proportion of total
female population, 2007 (percent)
80
70 68%
60 57%
50
40
30
20
10
0 According to the respondents to our
China Brazil
Source: International Labor Organization
any time. However, according to the
World Bank31, only 16 percent of Indian
manufacturing firms provided in-
service training to their employees,
compared to 92 percent in China. This
shortfall, if not addressed, will inevitably
see India losing out in FDI and global
competitiveness in the longer term.
Innovation:
the virtuous circle
Alongside the capacity to maximize
human capital, innovation is a critical
factor in sustaining productivity
improvements. Typically, successful
players in the Indian market use a
high-volume, low-margin business
model, finding fresh and inexpensive
ways to deliver existing technologies
to more people and places: what some
call low-cost innovation. An example
would be Mango Technologies
launching an Internet-enabled phone
designed to achieve maximum
functionality out of a modest handset
with limited memory, lower processing
capability, slower data download and
smaller screens. Multinationals in India
have been keen to leverage these kinds
of innovations to bring them closer to
the country’s massive and growing
consumer markets.
The evidence that India possesses the
raw materials for innovation can be
seen in the number of multinational
companies that have been attracted to
set up research and development
(R&D) centers in the country. A 2007
survey by the World Bank found that
more than 300 multinationals had set
up R&D and technology centers in
India in recent years. In fact, these
55%
50%
34%
Russia South Korea India
R&D centers account for over 60
percent of the US$9.35 billion R&D
off-shoring industry. This is projected
to grow to be a US$21.4 billion
industry by 2012.32
These centers of innovation have
generated the sharing and
multiplication of knowledge and skills
across India’s workforce through
technology transfer and through
unplanned technology spillovers. For
example, Texas Instruments’ advanced
communication systems helped Indian
companies emulate leading practices
and move towards the development of
offshore capabilities. Indian suppliers
and partners of multinationals can
learn from MNC best practice,
generating a virtuous circle of
innovation and wealth creation.
Innovation is not restricted to products
and marketing, however. In the same
way that India has been able to attract
investment from around the world to
set up R&D centers, there is an
opportunity to position the country as
an ideal test bed for a variety of
innovative business models. India’s
large and diverse populations, its
proficiency in English and variations in
infrastructure and distribution
channels allow a variety of business
models to be tested in the same
location; covering mass low-income
targets, high-end luxury consumers,
and a variety of tastes, cultures and
religions.
Simplifying the
bureaucratic ‘experience’
Our interview-based research suggests
that, while MNCs are experiencing an
increasing ease in doing business in
India, more needs to be achieved in
order to enhance the value of their net
contribution. In order to attract FDI,
central and state governments have
been implementing a number of laws
and measures to remove regulatory
and procedural barriers to the
establishment of foreign enterprises.
survey, while this has made entry by
MNCs into India easier, establishing
and expanding within India is still a
‘challenging experience’ (see Figure 4).
A significant number of respondents
said that the Department for Industrial
Policy and Promotion (DIPP) and the
State Single Window cells provide
initial support for new entrants “but
there is little support thereafter”. Our
research also emphasized that time-
sensitive government bureaucracy is a
top factor in determining whether
MNCs choose to invest and expand in
India.
Other key bureaucratic challenges in
India include the following:
! There are often approval hurdles
that emerge at state and local
government level
! MNC executives are often surprised
by a range of new approval requirements
that they did not know existed prior to
establishing operations. Moreover,
there is little support from government
in navigating these additional hurdles
! There are a number of government
departments and agencies that exist to
aid the overall approval process.
However, little is known by business
leaders about these support systems
Many of these challenges result in
unexpected delays and higher costs for
businesses—discouraging MNCs from
setting up and expanding in India.
Addressing these inhibitors now could
not only spur investments, but also
help differentiate India from its rival
economies. The central and state
governments have already been
implementing a range of laws and
measures to remove regulatory and
procedural barriers associated with the
establishment of MNCs in India.
However, in order to launch India into
Figure 4: Problems with India’s business environment identified by
MNCs and industry bodies
Multiple interpretations of
tax regulations
Unfavorable policies and regulations
Procedural delays
Corruption
IPR enforcement
Other issues
Source: Accenture/Confederation of Indian Industry Survey
the next phase of growth, and position
it ahead of the other BRIC economies,
further action is needed to enhance
the overall bureaucratic experience.
Key actions would include:
! Enhancing coordination between the
central, state and local governments
about approval processes for foreign
businesses
! Improving lines of communication
between governments and newcomer
businesses regarding the overall
approval processes, including
requirements at the central, state
and local levels
! Facilitating support from government
departments and agencies beyond the
initial stage of setting up operations
Rationalizing taxation
A predictable business environment
includes a stable and easily
understandable tax system. Along with
the process of economic liberalization,
India’s complex tax system has been
undergoing significant change, bringing
both a rationalization and reduction in
corporate tax rates. The Government of
India is now undertaking an effort at
significant tax reform through the
Draft Direct Taxes Code 2009. The
Code is ambitious and represents a
watershed in Indian tax policy, seeking
to promote tax compliance, introduce
a single Goods and Services Tax,
simplify tax language, and reduce the
scope for tax disputes.
72%
59%
46%
36%
28%
28%
However, many MNCs operating in
India still face a complex network of
tax structures and mechanisms—an
area where India lags behind Brazil,
China and Russia. Business executives
operating in India told us that
navigating the Indian tax system
remains a significant challenge.
Around 70 percent of MNCs surveyed
and interviewed are of the opinion that
the reforms in the tax administration
that have occurred to date, especially
with regards to implementation and
interpretation of tax statutes at the
ground level, have been inadequate.
Some of the key challenges in the area
of taxation include:
! Laws are often interpreted in
different ways by different tax
authorities, as well as by different
officials within the same tax authority
! Tax authorities aggressively use their
powers to conduct investigative
processes at early stages, and to
pressure companies into paying taxes
before a full audit is in place
! There are significant costs and
business disruptions resulting from the
implementation of amendments to tax
statutes with retrospective effect
! Significant delays are often created
by transfer pricing issues
These challenges combine to create a
‘high-stress-low-trust’ tax
environment. India must address these
challenges in order to attract the
capital and skills needed for the next
11
phase of growth. Our analysis suggests
that government could help achieve
this by:
! Implementing a ‘grandfathering’
period where amendments to the tax
code are made—i.e. a time allocated to
enable businesses to restructure their
transactions in line with new tax
requirements
! Improving awareness and
communication with businesses about
the mechanisms that exist to reduce
transaction costs in taxation, as well as
bringing in more predictability to the
tax system (such as the Large Tax
Payers Unit and Advance Ruling)
! Clarifying and improving transfer
pricing legislation, specifically with
regards to provisions for advance
pricing agreements
Safeguarding intellectual
property
Ideas and knowledge are an
increasingly important part of business
and international trade. Much of the
value of medicines, software and new
technologies lies in the invention,
research and innovation involved in
their production. The protection of
intellectual property rights (IPR) is
therefore a key factor for ensuring that
any economy attracts investment from
MNCs specializing in high-tech,
knowledge-intensive products and
services.
There are currently a number of
challenges relating to IPR protection
that businesses face in India, which
combine to stifle investment and
discourage business expansion. The
weak enforcement of IPRs has been the
bane of businesses operating in many
emerging market economies, but this is
particularly so in the case of India. Our
research has revealed that some of the
ongoing challenges in the area of IPR
protection include the following:
! Little focus on the enforcement of
IPR laws. As a result, penal provisions
fail to act as a deterrent to
infringements
! The system of IPR enforcement and
regulation is highly fragmented,
comprising several government
departments and agencies in disparate
regions of the country
12
! Local enforcement authorities often
have limited understanding of IPRs,
and central and state governments’
allocations of resources towards
building IPR-related capabilities and
infrastructure are inadequate
Poor enforcement of IPRs creates
losses for both businesses and tax
authorities. Intellectual property
piracy has been rising in India, and is
estimated to be worth several billion
dollars annually. Some of the sectors
that traditionally suffer include
business software, pharmaceuticals,
and the movie and music industries.
But as technology, knowledge, and
ideas become increasingly important
drivers of economic growth in India, so
too will IPR protection grow to become
a pressing issue for businesses in many
other industries.
India has already taken a number of
significant steps in building its IPR
protection capacity through WTO-
compliant legal statutes. Additional
policy initiatives, developed in
consultation with MNCs, would help
build a more stable and secure
operating environment. Some of the
actions the international business
community would welcome include:
! The establishment of a common
body or taskforce to centralize control
over the enforcement of IPR laws, as
well as improving the efficiency of the
IPR administration
! The allocation of additional
resources towards building IPR-related
capabilities and infrastructure
! Improved capabilities for judicial
authorities in the area of IPR protection,
such as fast-track legal processes for
IPR infringement, and the adoption of
deterrent-level sentences
Reducing barriers to the
free flow of people
With knowledge becoming an engine
of growth across sectors, talent has
become a strategic developmental
asset. India is becoming an
increasingly knowledge-intensive
economy, producing millions of highly-
educated graduates every year. The
Indian diaspora is also beginning to
return to India in increasing numbers.
India is thus well-positioned in terms
of its talent base when compared to
many other emerging market
economies, and has become a home to
a large and growing pool of engineers,
scientists and other professionals.
Reducing barriers to the free flow of
people is fundamental to maintaining
a hub of talent excellence in India,
since it enables talent to come in from
abroad and move about the country
with relative ease. However, our
research uncovers a number of barriers
that continue to block the flow of
talent both to and within India. Some
of the challenges to the free flow of
talent in India include:
! People moving to India from abroad
have difficulty acquiring and renewing
work and residence permits, a process
riddled with delays
! A relatively lower quality of social
amenities and infrastructure (e.g.
education, healthcare, living
conditions) discourages Indian diaspora
talent as well as MNC employees from
working in India or outside the key
metropolitan cities
! The quality and extent of
communication and power
infrastructure is often not up to the
standard required to support virtual
and real-world flows of talent at an
affordable cost
The financial crisis and recession
represent an opportunity to redefine
India as a destination for talent from
around the world. With rising
unemployment in many Western
economies, competition for the world’s
best and brightest minds is increasing.
Returning professionals are a
particularly valuable asset to MNCs
operating in India, as they bring global
experience and act as conduits for the
exchange of new ideas. It is therefore
of increased significance today that
policymakers and business leaders act
to address these barriers to talent
flows in India. Such actions might
include:
! A simplification of immigration and
processes for obtaining work visas for
new entrants to India
! Supporting foreign talent acquisition
by offering quality-of-life incentives
(e.g. healthcare benefits, pensions) to
foreigners and Indians living abroad, as
the Chinese government is doing
fundamental to managing change.
Multinationals also play a critical role
in India both as drivers of productivity
improvements and as channels for
investments and new assets that
improved productivity will attract into
the country. This chapter analyses the
challenges and opportunities that can
engender those advances, focusing on
the two crucial areas in which step-
changes in productivity can be realized:
human capital and innovation.
The wisest investment:
human capital
India has three distinct advantages in
its human capital: a young
demographic, English language skills
and a culture that values learning and
is open to external influences. At the
same time, it is clear that productivity
and competitiveness are hampered by
education and training infrastructures
that are inadequate for the size of the
population and the speed of
improvement required for sustainable
growth. The deficits can be found at all
levels, including basic education,
vocational training and higher education.
Improving skills
Driving improvements in basic
education, including literacy and
numeracy, is vital to ensure that the
groups currently excluded from the
workforce are able to become productive.
This is particularly urgent in rural areas.
Similarly, improvements in vocational
training are essential if India’s
infrastructure constraints across the
country are to be addressed. Such projects
require commitment and engagement
from a variety of stakeholders at both
national and state levels. A good
example is the Prime Minister's
National Council on Skill Development,
which will launch a public-private
initiative to train 150 million people
across the country with the skills needed
to work in manufacturing.
India’s legacy of strong higher-
education institutions has served the
nation well in building the economic
progress of the last decade. But there
is no room for complacency,
particularly as only 12 percent of the
country’s population enrolls in higher
education, compared to 30 percent in
Brazil, 23 percent in China, 75 percent
in Russia and 82 percent in the United
States.29 Moreover, Accenture analysis
shows that despite spending more on
each student in its higher education
system than Brazil, China, Russia,
South Korea and Singapore, India
performs worse than these countries
when compared to specific measures
of delivery and innovation, access and
inclusiveness and internationalization
of their higher education systems.
MNCs continue to play a critical role in
bringing new ideas and investments
into India’s education system. There is
an inherent self interest for MNCs to
support and build the skills of their
future employees, suppliers, customers
and partners. By investing in the
nation’s education levels, MNCs are
improving the productivity and growth
potential of their business as well as
improving the expected returns on
their investments in India. MNCs in the
IT industry have been particularly active
in encouraging and investing in solutions
to address India’s education deficit,
often partnering with government
bodies or non-governmental
organizations and frequently utilizing
technology-based solutions in order to
21

Chapter three: Building
capabilities for the future
India has an abundance of talent and
capital; the country’s potential is high,
yet productivity levels are notoriously
low (see Figure 7). Large sections of
society are excluded from the productive
workforce, including much of the rural
population, the majority of whom are
subsistence farmers, and there is a low
rate of female workforce participation.
India is home to 20 percent of the
world’s people, a third of whom are
below the age of 15. This youthful
demographic will add about 250
million additional workers to the labor
pool in the twenty years to 2025.28
However, if the coming generations are
not able to attain dramatically
improved levels of education, health
and productive employment, their
contribution to India’s and to the
world’s economic and social welfare
will be severely threatened. Our
analysis highlights that:
! Beyond increasing participation in
the productive workforce, India’s
output can also be significantly
enhanced through productivity
improvements across the existing
economy
20
! Better enabling the virtual flow of ! Fulfilling the government’s
talent and ideas through upgrades to commitment to add power-generation
information technology and power capacity and expand electricity access
infrastructure in cities as well as rural in rural areas
areas ! Implementing upgrades to railway
stations and existing technologies,
Improving infrastructure including creating India’s first high-
The development of physical speed rail network between major
infrastructure has long been recognized metropolitan cities
as one of the most important factors ! Developing and implementing a
for attracting foreign investment, national IT infrastructure strategy,
increasing competitiveness and driving encompassing the expansion of
economic growth. Transportation, broadband access beyond the initial
energy and Information Technology targets set out in the Eleventh Plan
networks are all prime enablers of
productivity and improved economic
efficiency.
Our research confirms that MNC
growth has been held back in India for
want of a solid network of roads,
efficient railways and a uniform power
supply. The country is predicted to lose
close to US$200 billion of GDP by
2017 due to delays in infrastructure
development.7 As a result, businesses
still face a number of challenges in
conducting everyday activities in India.
Some of these challenges include the
following:
! Electricity flows run short due to
capacity shortages, despite the fact
Figure 7: Labor Productivity, 2008 (as a percentage of US levels) that access to electricity is increasing
100% ! Indian Railways face a range of
problems, including outdated
technologies, under-maintained
68% railway stations and gaps in
connectivity to remote areas
57%
! India’s IT infrastructure remains
36% comparatively underdeveloped,
32% particularly in the areas of broadband
23% and mobile phone connectivity
11% 8% MNCs and domestic companies
universally welcome the Indian
government’s current commitment to
US Singapore South South Russia Brazil China India
Korea Africa
improving infrastructure in India. The
Planning Commission has targeted an
Note: Labor productivity measured as GDP at constant prices and PPP per person employed investment of US$20.38 billion in
Source: Economist Intelligence Unit infrastructure over the next two years
! Competitive pressures from fast-emerging ! Productivity improvements hold the through its Eleventh Plan, covering
economies around the world threaten to key to continued investment as well as areas such as railroads, electrification,
erode India’s position in important ensuring higher and more sustainable airports and telecommunications.8
higher-value sectors such as IT levels of growth and competitiveness With continued policy commitments in
the infrastructure space, India can
! The need to attract overseas investment Policymakers play a critical role in establish the foundation required for
into targeted growth industries of the defining success. They can reach out to future investment and growth. Some of
future is even more urgent as a wide range of stakeholders to ensure the actions that would be welcomed by
multinationals are presented with that targets and outcomes are aligned businesses in India include:
increasing options from a disparate with the country’s aspirations for social
range of economies eager to attract and economic growth. Identifying
capital and skills desired outcomes and setting targets is
13
Chapter two:
Combining old and new
The Indian economy has benefited
immensely in recent years from
developments in a number of higher-
value-added industry sectors (such as
IT and business process operations) as
well as specific islands of success (such
as automotive parts). These sectors
have driven the spectacular economic
growth in the decade leading up to the
current downturn.
While these engines of growth have
become established in India, however,
the broader population has remained
dependent on traditional sectors, such
as agriculture. If the Indian economy is
to sustain its growth it is vital that
traditional Indian sectors also begin to
share the success story. There is
tremendous potential in developing
traditional industries such as agriculture
and manufacturing, particularly if
higher value-chain operations can be
established within them.
Alongside this investment in
traditional industries, our research
shows that India is uniquely placed to
be at the forefront of growth in new
industry sectors, particularly in
renewable energy, healthcare and the
14
next wave of information technology.
Huge advances have been made in
these areas, often by MNCs working in
close conjunction with government
and local stakeholders, but the
opportunities have only begun to be
exploited.
Our research demonstrates that the
growth that has been set in motion in
IT and business process operations can
be mirrored more widely across the
economy in three key areas: agriculture,
manufacturing and sunrise industries.
Figure 5: Breakup of GDP in India, while cloud computing has become the
2008-09 (% of GDP at constant prices) support structure of choice for the
online community worldwide, it has
17.0% taken some time to be widely used on
the subcontinent. Nevertheless, the
increasing digitization of content
(e.g. by libraries and government
departments) also affords a huge
64.5%
opportunity to position India as the
global center of digital industries.
18.5%
Developing cultural industries
Creative and cultural industries (e.g.
advertising, digital media and
Agriculture Industry Services
entertainment) have in recent years
become increasingly important direct
Source: Annual report, Reserve Bank of India, 2008-09
sources of economic growth among
emerging economies, as well as
providing indirect benefits in terms of
enhanced brand awareness. South
Korea has established itself as a leader
in South-East Asia in this field. The
citys of Seoul has made a concerted
effort to attract artists and creative
talent to locate there and has since
been at the epicenter of a cultural
wave that has seen Korean culture
become increasingly popular around the
world, especially in Asia. This has
primarily been witnessed through its
music, technology, film, food and
television dramas.
In similar fashion, India has a rich
cultural heritage that can be better
leveraged in order to realize higher
levels of economic growth. The impact
of cultural phenomena such as the
Bollywood film industry demonstrates
the creativity that exists within Indian
society that, if combined with India’s
strength in IT and digital media, can
also be harnessed to develop new industry
sectors. Indeed, the link between high-
tech media and the high arts provide
opportunities for collaboration and
integration between sectors. So, for
example, Japan’s Sony has moved away
from being an electric goods company
to being a music production company
too. In India, the advertising industry is
already becoming increasingly
competitive. Combined with the latest
developments in digital media, there is
the opportunity to create growth in
new cultural industry sectors. Further,
one of the best ways to improve the
margins in core consumer industries—
including the automotive industry—is
to infuse products with cutting-edge
design. Indian culture is already widely
appreciated across Asia, with high demand
for films in particular. This appreciation
for Indian culture can be used to
strengthen ‘Brand India’, improving the
attractiveness of Indian goods and
services overseas (see chapter four).
In order to realize growth in these new
sectors, a number of actions are needed:
! India is making concerted efforts
and progress in the area of renewable
energy. In these fields, businesses rely
on clear regulatory direction from
governments. Clear signals here- coupled
with incentives for investment in low-
carbon technologies - will ensure
investment from MNCs and domestic
companies alike
! To build on its history of IT excellence,
developments such as ‘cloud’ technologies
and digitization must be invested in and
quickly assimilated. The Indian government
could conduct a feasibility study into
establishing a South Asian cloud in India,
reviewing infrastructure and server
capacity. This would ideally be accompanied
by a review of data protection legislation
to ensure that digitization of records is
feasible
19
across the health spectrum. The Indian
domestic pharmaceutical market was
estimated to be worth US$10.76
billion in 2008 and is expected to grow
at a rate of 9.9 percent till 2010 and
thereafter at 9.5 percent until 2015. To
meet a growing international market in
the developing world, India’s global
pharmaceutical sourcing industry is
destined to become a US$2.5 billion
opportunity by 2012, driven by R&D
costs and a high-end talent pool in
India.27
New technologies
Increased globalization and the growing
ubiquity and power of information and
communications technologies (ICT) are
radically reshaping the environment
for business. Huge developments are
either already happening or are on the
horizon:
! Cloud computing: the delivery of
technical capabilities—hardware,
software and storage—through the
Internet, across company firewalls and
national boundaries
! Virtualization: the move away from
the physical provision of IT infrastructure
18
Figure 6: Total primary energy production and consumption in India Agriculture: reducing presently growing at 13.5 percent per ! MNCs must continue to work with
(Quadrillion British Thermal Unit) annum against 6.5 percent in 2003–04, local partner organizations and
dependence, enhancing and is certain to be an important driver governments to raise agricultural skill
18
value of the Indian economy.13 Also, the levels and tap into new labor pools
15 agricultural biotechnology sector,
! Increased investment in higher value
India’s dependence on agriculture has which has been growing at an
12 chain activities (such as food
reduced in recent years. Agriculture extraordinary 30 percent for the last
9 accounted for about 23.9 percent of processing and biotechnology) should
five years, is likely to sustain its
India’s GDP in 19989, but reduced over be facilitated to open up new
6 growth.14 A recent report predicts that
the decade to 17 percent in 2008-09 consumer markets and empower rural
the agricultural biotechnology sector
3
(see Figure 5).10 The share of agriculture development (see box on rural
in India can become a major source of
0 in total employment also decreased development)
transgenic rice and several genetically
from 65 percent in 1983 to around 52 engineered vegetables by 2010.15 ! The government must maintain
percent by 2004-05, in part as a result support for agricultural interventions
of increased mechanization and more This revival in agriculture has been (such as irrigation) and work to
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 predictable irrigation.11 One driven in large part by the growth in incentivize investment in growth
consequence of these technological public sector investment in farming,
Total Production Total Consumption industries such as biotechnology
interventions is that, in value-added which has increased steadily from 1.8
terms, agriculture has grown at 7.9 percent of sectoral GDP in 2000–01 to
Source: US Energy Information Administration
percent in the decade to 2008 and 3.5 percent in 2006–07.16 If growth is
recent value-added growth in to be maintained it is clear that
! Digitization of content: more ! Superfast broadband: the increasing agriculture has been yet more significant public investment must
information is available online than availability of high-speed internet encouraging at 11 percent.12 continue, supplemented by an
ever before with many traditional connections is driving increased increased commitment to higher
media (e.g. books, films and music) efficiency for businesses Our analysis suggests that the specific value-chain activities and a greater
industry sectors undertaking higher
also making the transition concentration on increasing land yields
India has the potential to be at the value-added activity that have grown through modern agricultural
! Mobile commerce: mobile devices forefront of many if not all of these significantly in recent years offer great techniques. Further actions to realize
will augment and in many cases advances. For example, with its track future potential. For example, the food growth include the following:
supplant personal computers as the record of IT excellence, India can processing sector, which already
new e-business channel for employees position itself as the natural home of contributes 9 percent to India’s GDP, is
the ‘South-East Asian cloud’. However,
and customers
15

The role of MNCs in rural
development
As India’s dependence on agriculture
reduces, there is a need to provide
alternative means of employment and
economic growth in rural areas. While
improving basic manufacturing may
provide many of these opportunities
(see next section), there is a key role
for MNCs to play in developing rural
communities and helping to promote
small- to medium-sized enterprises
(SMEs). Three key areas where MNCs
are playing a key role in developing
rural communities are highlighted
below:
Micro-finance
Creating local entrepreneurs:
Hindustan Unilever Limited’s (HUL)
Project Shakti covers 50,000 villages
(each populated by fewer than 2,000
individuals) and creates profitable
micro-enterprise opportunities for rural
women. Armed with micro-credit, rural
women become Shakti entrepreneurs:
direct-to-home distributors in rural
markets. The products distributed are
some of the country’s most trusted
brands of consumer goods and include a
range of mass-market products especially
relevant to rural consumers. HUL trains
women entrepreneurs on how to run
businesses. While the Shakti entrepreneur
program is creating livelihoods among
under-privileged people across several
states in India, the related Shakti Vani
program focuses on improving the
quality of life through health and hygiene
awareness initiatives in rural areas.
16
Technology
Connecting communities, opening
consumer markets:
Nokia have developed local programs
and solutions tailored to the needs of
rural customers in emerging markets. For
example, Nokia Siemens Networks’
‘Village Connection’ is an innovative
solution that provides rural people with
access to information and
communications technologies while also
encouraging entrepreneurship. The
system provides villages with local
access points, which include all the
technology needed to establish a village-
level communications network. These
local networks are run by entrepreneurs
as franchises, reducing costs for network
operators.
Innovation
Moving agriculture up the value chain:
local partnerships between local entities
and foreign MNCs have ensured the
transfer of knowledge and expertise that
is helping move agriculture into higher-
value-added activity. For example, in the
area of food processing, Pepsi Foods Ltd.,
Nestle India Ltd., and Cadbury India Ltd.,
are engaged in product development
with local research institutes to develop
hybrid crops and vegetables as well as
new implements that will help improve
cropping patterns and raise productivity.
Similarly, in biotechnology, MNCs have
established joint ventures with Indian
companies, providing access to their
proprietary tools and technologies.17
Manufacturing: waking the
big sleeper
Manufacturing has long been
considered the ‘big sleeper’ of the
Indian economy. The share of
manufacturing in India’s GDP has
remained almost static at around 15.5
percent for the last decade, though
the share of the manufacturing sector
in terms of total employment has
increased from 11.3 percent18 in 1983
to 12.9 percent in 2004-05, bringing
the number of people working in the
industry to nearly 50 million. A few
segments of the industry represent the
bulk of this revenue, in particular food
products, chemical products, and the
heavy machinery and equipment sub-
sector.
The most significant of these is the
latter (which includes automotives),
that has averaged 13 percent growth
from 2004 to 2008.19 Despite the
changing economic climate, it is
forecast that the automotive sector
will grow by 10.9 percent year-on-year
in 2009-10, even as overall
manufacturing grows only by 4.5
percent.20 MNCs have been—and will
continue to be—at the heart of this
growth. For example, when the
Japanese carmaker Suzuki partnered
with India’s Maruti to become the first
foreign entrant in India’s personal
automobile market, it rapidly gained a
70 percent share of the total market.
One of the results of MNC success in
automotive manufacturing has been a
massive expansion in jobs, skills,
knowledge and a swathe of ancillary
industries, most notably the birth of
India’s globally competitive and
successful automotive-parts sector.
Indeed, going forward the most
significant opportunities exist in high-
value-added activities in the
automotive sector such as component
parts. Manufacturers of luxury cars are
increasingly looking at making India a
sourcing hub for components, as well
as building more components for India’s
market. Seeing India’s success in this
sector, the Investment Commission has
set a target of attracting foreign
investment worth US$5 billion for the
next seven years to increase India's
share in the global automotive-
components market from the existing
0.9 percent to 2.5 percent by 2015.
MNCs are likely to be at the heart of
this increased investment. By 2015-16,
the turnover of the auto-component
industry is forecast to reach US$40
billion—up from US$18 billion in
2007-08.21
At the same time, of course, basic
manufacturing will remain an
important and a significant employer
of lower-skilled workers, particularly
those who have moved out of the
agricultural sector as a result of
increased mechanization. MNCs can
play a significant role both in
employing these workers and in
equipping them with the skills
necessary to make the transition (see
next chapter on education). The
challenge for India as a whole,
therefore, is to pursue a twin-track
approach: to develop basic
manufacturing in order to absorb
lower-skilled workers, but also to
enhance higher-value-added
manufacturing. Actions to achieve this
include the following:
! MNCs should continue to work in
partnership with local businesses both
to drive efficiencies in manufacturing,
and to broaden the domestic sourcing
of vehicles and products
! MNCs should play a significant role
in both shaping and delivering the
training needed by basic manufacturing
workers (see next chapter on education),
providing knowledge of leading
practices, as well as driving advanced
engineering skills
! The government should help target
investment in local, job-specific
training, which will reduce dependence
on agriculture and ensure a gradual
transition into higher-value-added
activity
New growth engines:
investing in sunrise sector
Beyond the traditional sectors of
agriculture and manufacturing, India is
extremely well placed to play a crucial
role in the ‘sunrise’ technologies of the
future. Already considerable
investment has gone into identifying
and pursuing these markets, with
MNCs working in partnership with
government and local companies.
Some of the most obvious success
stories are to be found in the
renewable energy industry, but great
advances have also been made in the
health-related industries and in
advanced digital technologies.
Renewable energy and the low-
carbon economy
India currently suffers from a shortage
of electricity generating capacity. This
means that consumption consistently
outstrips production of energy (see Figure 6),
leading to a high level of oil imports.
However, India has also made significant
progress in developing renewable
sources of energy supply. A recent
index of renewable energy technologies
ranks India in third place behind the
United States and Germany.22 At a time
when renewable energy sources comprise
just 12.9 percent of total energy
production globally, in India renewables
account for 40 percent of energy
production.23 The Indian government
has pledged to invest US$21 billion in
renewable-energy generation over a
five-year period ending in 2012, by
which time it has also set an ambitious
target of adding 14.5 gigawatts of
renewable power generation capacity.24
There are considerable opportunities
for MNCs to drive growth and pioneer
sustainable energy sources. India’s
climate, scale and geography provide
the natural resources of the future.
Already MNC contributions in this
sector have been significant. For
example, BP has been an investor in
India’s alternative energy market for
over 15 years. The Tata BP Solar joint
venture is a leader in the Indian solar
energy market and exports around 60
percent of its products to Europe and
the United States. It has also benefited
several million people in rural parts of
India with increased access to low-
cost, sustainable energy.
Healthcare and
pharmaceuticals
Healthcare was a US$35 billion
industry in India in 2008 and is
expected to reach over US$70 billion
by 2013 and US$285 billion by 2023.25
The sector offers immense potential to
MNCs and to national stakeholders as
the country attempts to combat a
dramatic rise in the incidence of
lifestyle-related and other diseases.
To meet this growing demand, the
country is estimated to need US$50
billion of investment annually for the
next 20 years.26 To take just one
example, India needs to add 3.1 million
hospital beds by 2018 to the existing
1.1 million. These trends are reflected
17

The role of MNCs in rural
development
As India’s dependence on agriculture
reduces, there is a need to provide
alternative means of employment and
economic growth in rural areas. While
improving basic manufacturing may
provide many of these opportunities
(see next section), there is a key role
for MNCs to play in developing rural
communities and helping to promote
small- to medium-sized enterprises
(SMEs). Three key areas where MNCs
are playing a key role in developing
rural communities are highlighted
below:
Micro-finance
Creating local entrepreneurs:
Hindustan Unilever Limited’s (HUL)
Project Shakti covers 50,000 villages
(each populated by fewer than 2,000
individuals) and creates profitable
micro-enterprise opportunities for rural
women. Armed with micro-credit, rural
women become Shakti entrepreneurs:
direct-to-home distributors in rural
markets. The products distributed are
some of the country’s most trusted
brands of consumer goods and include a
range of mass-market products especially
relevant to rural consumers. HUL trains
women entrepreneurs on how to run
businesses. While the Shakti entrepreneur
program is creating livelihoods among
under-privileged people across several
states in India, the related Shakti Vani
program focuses on improving the
quality of life through health and hygiene
awareness initiatives in rural areas.
16
Technology
Connecting communities, opening
consumer markets:
Nokia have developed local programs
and solutions tailored to the needs of
rural customers in emerging markets. For
example, Nokia Siemens Networks’
‘Village Connection’ is an innovative
solution that provides rural people with
access to information and
communications technologies while also
encouraging entrepreneurship. The
system provides villages with local
access points, which include all the
technology needed to establish a village-
level communications network. These
local networks are run by entrepreneurs
as franchises, reducing costs for network
operators.
Innovation
Moving agriculture up the value chain:
local partnerships between local entities
and foreign MNCs have ensured the
transfer of knowledge and expertise that
is helping move agriculture into higher-
value-added activity. For example, in the
area of food processing, Pepsi Foods Ltd.,
Nestle India Ltd., and Cadbury India Ltd.,
are engaged in product development
with local research institutes to develop
hybrid crops and vegetables as well as
new implements that will help improve
cropping patterns and raise productivity.
Similarly, in biotechnology, MNCs have
established joint ventures with Indian
companies, providing access to their
proprietary tools and technologies.17
Manufacturing: waking the
big sleeper
Manufacturing has long been
considered the ‘big sleeper’ of the
Indian economy. The share of
manufacturing in India’s GDP has
remained almost static at around 15.5
percent for the last decade, though
the share of the manufacturing sector
in terms of total employment has
increased from 11.3 percent18 in 1983
to 12.9 percent in 2004-05, bringing
the number of people working in the
industry to nearly 50 million. A few
segments of the industry represent the
bulk of this revenue, in particular food
products, chemical products, and the
heavy machinery and equipment sub-
sector.
The most significant of these is the
latter (which includes automotives),
that has averaged 13 percent growth
from 2004 to 2008.19 Despite the
changing economic climate, it is
forecast that the automotive sector
will grow by 10.9 percent year-on-year
in 2009-10, even as overall
manufacturing grows only by 4.5
percent.20 MNCs have been—and will
continue to be—at the heart of this
growth. For example, when the
Japanese carmaker Suzuki partnered
with India’s Maruti to become the first
foreign entrant in India’s personal
automobile market, it rapidly gained a
70 percent share of the total market.
One of the results of MNC success in
automotive manufacturing has been a
massive expansion in jobs, skills,
knowledge and a swathe of ancillary
industries, most notably the birth of
India’s globally competitive and
successful automotive-parts sector.
Indeed, going forward the most
significant opportunities exist in high-
value-added activities in the
automotive sector such as component
parts. Manufacturers of luxury cars are
increasingly looking at making India a
sourcing hub for components, as well
as building more components for India’s
market. Seeing India’s success in this
sector, the Investment Commission has
set a target of attracting foreign
investment worth US$5 billion for the
next seven years to increase India's
share in the global automotive-
components market from the existing
0.9 percent to 2.5 percent by 2015.
MNCs are likely to be at the heart of
this increased investment. By 2015-16,
the turnover of the auto-component
industry is forecast to reach US$40
billion—up from US$18 billion in
2007-08.21
At the same time, of course, basic
manufacturing will remain an
important and a significant employer
of lower-skilled workers, particularly
those who have moved out of the
agricultural sector as a result of
increased mechanization. MNCs can
play a significant role both in
employing these workers and in
equipping them with the skills
necessary to make the transition (see
next chapter on education). The
challenge for India as a whole,
therefore, is to pursue a twin-track
approach: to develop basic
manufacturing in order to absorb
lower-skilled workers, but also to
enhance higher-value-added
manufacturing. Actions to achieve this
include the following:
! MNCs should continue to work in
partnership with local businesses both
to drive efficiencies in manufacturing,
and to broaden the domestic sourcing
of vehicles and products
! MNCs should play a significant role
in both shaping and delivering the
training needed by basic manufacturing
workers (see next chapter on education),
providing knowledge of leading
practices, as well as driving advanced
engineering skills
! The government should help target
investment in local, job-specific
training, which will reduce dependence
on agriculture and ensure a gradual
transition into higher-value-added
activity
New growth engines:
investing in sunrise sector
Beyond the traditional sectors of
agriculture and manufacturing, India is
extremely well placed to play a crucial
role in the ‘sunrise’ technologies of the
future. Already considerable
investment has gone into identifying
and pursuing these markets, with
MNCs working in partnership with
government and local companies.
Some of the most obvious success
stories are to be found in the
renewable energy industry, but great
advances have also been made in the
health-related industries and in
advanced digital technologies.
Renewable energy and the low-
carbon economy
India currently suffers from a shortage
of electricity generating capacity. This
means that consumption consistently
outstrips production of energy (see Figure 6),
leading to a high level of oil imports.
However, India has also made significant
progress in developing renewable
sources of energy supply. A recent
index of renewable energy technologies
ranks India in third place behind the
United States and Germany.22 At a time
when renewable energy sources comprise
just 12.9 percent of total energy
production globally, in India renewables
account for 40 percent of energy
production.23 The Indian government
has pledged to invest US$21 billion in
renewable-energy generation over a
five-year period ending in 2012, by
which time it has also set an ambitious
target of adding 14.5 gigawatts of
renewable power generation capacity.24
There are considerable opportunities
for MNCs to drive growth and pioneer
sustainable energy sources. India’s
climate, scale and geography provide
the natural resources of the future.
Already MNC contributions in this
sector have been significant. For
example, BP has been an investor in
India’s alternative energy market for
over 15 years. The Tata BP Solar joint
venture is a leader in the Indian solar
energy market and exports around 60
percent of its products to Europe and
the United States. It has also benefited
several million people in rural parts of
India with increased access to low-
cost, sustainable energy.
Healthcare and
pharmaceuticals
Healthcare was a US$35 billion
industry in India in 2008 and is
expected to reach over US$70 billion
by 2013 and US$285 billion by 2023.25
The sector offers immense potential to
MNCs and to national stakeholders as
the country attempts to combat a
dramatic rise in the incidence of
lifestyle-related and other diseases.
To meet this growing demand, the
country is estimated to need US$50
billion of investment annually for the
next 20 years.26 To take just one
example, India needs to add 3.1 million
hospital beds by 2018 to the existing
1.1 million. These trends are reflected
17
across the health spectrum. The Indian
domestic pharmaceutical market was
estimated to be worth US$10.76
billion in 2008 and is expected to grow
at a rate of 9.9 percent till 2010 and
thereafter at 9.5 percent until 2015. To
meet a growing international market in
the developing world, India’s global
pharmaceutical sourcing industry is
destined to become a US$2.5 billion
opportunity by 2012, driven by R&D
costs and a high-end talent pool in
India.27
New technologies
Increased globalization and the growing
ubiquity and power of information and
communications technologies (ICT) are
radically reshaping the environment
for business. Huge developments are
either already happening or are on the
horizon:
! Cloud computing: the delivery of
technical capabilities—hardware,
software and storage—through the
Internet, across company firewalls and
national boundaries
! Virtualization: the move away from
the physical provision of IT infrastructure
18
Figure 6: Total primary energy production and consumption in India Agriculture: reducing presently growing at 13.5 percent per ! MNCs must continue to work with
(Quadrillion British Thermal Unit) annum against 6.5 percent in 2003–04, local partner organizations and
dependence, enhancing and is certain to be an important driver governments to raise agricultural skill
18
value of the Indian economy.13 Also, the levels and tap into new labor pools
15 agricultural biotechnology sector,
! Increased investment in higher value
India’s dependence on agriculture has which has been growing at an
12 chain activities (such as food
reduced in recent years. Agriculture extraordinary 30 percent for the last
9 accounted for about 23.9 percent of processing and biotechnology) should
five years, is likely to sustain its
India’s GDP in 19989, but reduced over be facilitated to open up new
6 growth.14 A recent report predicts that
the decade to 17 percent in 2008-09 consumer markets and empower rural
the agricultural biotechnology sector
3
(see Figure 5).10 The share of agriculture development (see box on rural
in India can become a major source of
0 in total employment also decreased development)
transgenic rice and several genetically
from 65 percent in 1983 to around 52 engineered vegetables by 2010.15 ! The government must maintain
percent by 2004-05, in part as a result support for agricultural interventions
of increased mechanization and more This revival in agriculture has been (such as irrigation) and work to
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 predictable irrigation.11 One driven in large part by the growth in incentivize investment in growth
consequence of these technological public sector investment in farming,
Total Production Total Consumption industries such as biotechnology
interventions is that, in value-added which has increased steadily from 1.8
terms, agriculture has grown at 7.9 percent of sectoral GDP in 2000–01 to
Source: US Energy Information Administration
percent in the decade to 2008 and 3.5 percent in 2006–07.16 If growth is
recent value-added growth in to be maintained it is clear that
! Digitization of content: more ! Superfast broadband: the increasing agriculture has been yet more significant public investment must
information is available online than availability of high-speed internet encouraging at 11 percent.12 continue, supplemented by an
ever before with many traditional connections is driving increased increased commitment to higher
media (e.g. books, films and music) efficiency for businesses Our analysis suggests that the specific value-chain activities and a greater
industry sectors undertaking higher
also making the transition concentration on increasing land yields
India has the potential to be at the value-added activity that have grown through modern agricultural
! Mobile commerce: mobile devices forefront of many if not all of these significantly in recent years offer great techniques. Further actions to realize
will augment and in many cases advances. For example, with its track future potential. For example, the food growth include the following:
supplant personal computers as the record of IT excellence, India can processing sector, which already
new e-business channel for employees position itself as the natural home of contributes 9 percent to India’s GDP, is
the ‘South-East Asian cloud’. However,
and customers
15
Chapter two:
Combining old and new
The Indian economy has benefited
immensely in recent years from
developments in a number of higher-
value-added industry sectors (such as
IT and business process operations) as
well as specific islands of success (such
as automotive parts). These sectors
have driven the spectacular economic
growth in the decade leading up to the
current downturn.
While these engines of growth have
become established in India, however,
the broader population has remained
dependent on traditional sectors, such
as agriculture. If the Indian economy is
to sustain its growth it is vital that
traditional Indian sectors also begin to
share the success story. There is
tremendous potential in developing
traditional industries such as agriculture
and manufacturing, particularly if
higher value-chain operations can be
established within them.
Alongside this investment in
traditional industries, our research
shows that India is uniquely placed to
be at the forefront of growth in new
industry sectors, particularly in
renewable energy, healthcare and the
14
next wave of information technology.
Huge advances have been made in
these areas, often by MNCs working in
close conjunction with government
and local stakeholders, but the
opportunities have only begun to be
exploited.
Our research demonstrates that the
growth that has been set in motion in
IT and business process operations can
be mirrored more widely across the
economy in three key areas: agriculture,
manufacturing and sunrise industries.
Figure 5: Breakup of GDP in India, while cloud computing has become the
2008-09 (% of GDP at constant prices) support structure of choice for the
online community worldwide, it has
17.0% taken some time to be widely used on
the subcontinent. Nevertheless, the
increasing digitization of content
(e.g. by libraries and government
departments) also affords a huge
64.5%
opportunity to position India as the
global center of digital industries.
18.5%
Developing cultural industries
Creative and cultural industries (e.g.
advertising, digital media and
Agriculture Industry Services
entertainment) have in recent years
become increasingly important direct
Source: Annual report, Reserve Bank of India, 2008-09
sources of economic growth among
emerging economies, as well as
providing indirect benefits in terms of
enhanced brand awareness. South
Korea has established itself as a leader
in South-East Asia in this field. The
citys of Seoul has made a concerted
effort to attract artists and creative
talent to locate there and has since
been at the epicenter of a cultural
wave that has seen Korean culture
become increasingly popular around the
world, especially in Asia. This has
primarily been witnessed through its
music, technology, film, food and
television dramas.
In similar fashion, India has a rich
cultural heritage that can be better
leveraged in order to realize higher
levels of economic growth. The impact
of cultural phenomena such as the
Bollywood film industry demonstrates
the creativity that exists within Indian
society that, if combined with India’s
strength in IT and digital media, can
also be harnessed to develop new industry
sectors. Indeed, the link between high-
tech media and the high arts provide
opportunities for collaboration and
integration between sectors. So, for
example, Japan’s Sony has moved away
from being an electric goods company
to being a music production company
too. In India, the advertising industry is
already becoming increasingly
competitive. Combined with the latest
developments in digital media, there is
the opportunity to create growth in
new cultural industry sectors. Further,
one of the best ways to improve the
margins in core consumer industries—
including the automotive industry—is
to infuse products with cutting-edge
design. Indian culture is already widely
appreciated across Asia, with high demand
for films in particular. This appreciation
for Indian culture can be used to
strengthen ‘Brand India’, improving the
attractiveness of Indian goods and
services overseas (see chapter four).
In order to realize growth in these new
sectors, a number of actions are needed:
! India is making concerted efforts
and progress in the area of renewable
energy. In these fields, businesses rely
on clear regulatory direction from
governments. Clear signals here- coupled
with incentives for investment in low-
carbon technologies - will ensure
investment from MNCs and domestic
companies alike
! To build on its history of IT excellence,
developments such as ‘cloud’ technologies
and digitization must be invested in and
quickly assimilated. The Indian government
could conduct a feasibility study into
establishing a South Asian cloud in India,
reviewing infrastructure and server
capacity. This would ideally be accompanied
by a review of data protection legislation
to ensure that digitization of records is
feasible
19

Chapter three: Building
capabilities for the future
India has an abundance of talent and
capital; the country’s potential is high,
yet productivity levels are notoriously
low (see Figure 7). Large sections of
society are excluded from the productive
workforce, including much of the rural
population, the majority of whom are
subsistence farmers, and there is a low
rate of female workforce participation.
India is home to 20 percent of the
world’s people, a third of whom are
below the age of 15. This youthful
demographic will add about 250
million additional workers to the labor
pool in the twenty years to 2025.28
However, if the coming generations are
not able to attain dramatically
improved levels of education, health
and productive employment, their
contribution to India’s and to the
world’s economic and social welfare
will be severely threatened. Our
analysis highlights that:
! Beyond increasing participation in
the productive workforce, India’s
output can also be significantly
enhanced through productivity
improvements across the existing
economy
20
! Better enabling the virtual flow of ! Fulfilling the government’s
talent and ideas through upgrades to commitment to add power-generation
information technology and power capacity and expand electricity access
infrastructure in cities as well as rural in rural areas
areas ! Implementing upgrades to railway
stations and existing technologies,
Improving infrastructure including creating India’s first high-
The development of physical speed rail network between major
infrastructure has long been recognized metropolitan cities
as one of the most important factors ! Developing and implementing a
for attracting foreign investment, national IT infrastructure strategy,
increasing competitiveness and driving encompassing the expansion of
economic growth. Transportation, broadband access beyond the initial
energy and Information Technology targets set out in the Eleventh Plan
networks are all prime enablers of
productivity and improved economic
efficiency.
Our research confirms that MNC
growth has been held back in India for
want of a solid network of roads,
efficient railways and a uniform power
supply. The country is predicted to lose
close to US$200 billion of GDP by
2017 due to delays in infrastructure
development.7 As a result, businesses
still face a number of challenges in
conducting everyday activities in India.
Some of these challenges include the
following:
! Electricity flows run short due to
capacity shortages, despite the fact
Figure 7: Labor Productivity, 2008 (as a percentage of US levels) that access to electricity is increasing
100% ! Indian Railways face a range of
problems, including outdated
technologies, under-maintained
68% railway stations and gaps in
connectivity to remote areas
57%
! India’s IT infrastructure remains
36% comparatively underdeveloped,
32% particularly in the areas of broadband
23% and mobile phone connectivity
11% 8% MNCs and domestic companies
universally welcome the Indian
government’s current commitment to
US Singapore South South Russia Brazil China India
Korea Africa
improving infrastructure in India. The
Planning Commission has targeted an
Note: Labor productivity measured as GDP at constant prices and PPP per person employed investment of US$20.38 billion in
Source: Economist Intelligence Unit infrastructure over the next two years
! Competitive pressures from fast-emerging ! Productivity improvements hold the through its Eleventh Plan, covering
economies around the world threaten to key to continued investment as well as areas such as railroads, electrification,
erode India’s position in important ensuring higher and more sustainable airports and telecommunications.8
higher-value sectors such as IT levels of growth and competitiveness With continued policy commitments in
the infrastructure space, India can
! The need to attract overseas investment Policymakers play a critical role in establish the foundation required for
into targeted growth industries of the defining success. They can reach out to future investment and growth. Some of
future is even more urgent as a wide range of stakeholders to ensure the actions that would be welcomed by
multinationals are presented with that targets and outcomes are aligned businesses in India include:
increasing options from a disparate with the country’s aspirations for social
range of economies eager to attract and economic growth. Identifying
capital and skills desired outcomes and setting targets is
13
phase of growth. Our analysis suggests
that government could help achieve
this by:
! Implementing a ‘grandfathering’
period where amendments to the tax
code are made—i.e. a time allocated to
enable businesses to restructure their
transactions in line with new tax
requirements
! Improving awareness and
communication with businesses about
the mechanisms that exist to reduce
transaction costs in taxation, as well as
bringing in more predictability to the
tax system (such as the Large Tax
Payers Unit and Advance Ruling)
! Clarifying and improving transfer
pricing legislation, specifically with
regards to provisions for advance
pricing agreements
Safeguarding intellectual
property
Ideas and knowledge are an
increasingly important part of business
and international trade. Much of the
value of medicines, software and new
technologies lies in the invention,
research and innovation involved in
their production. The protection of
intellectual property rights (IPR) is
therefore a key factor for ensuring that
any economy attracts investment from
MNCs specializing in high-tech,
knowledge-intensive products and
services.
There are currently a number of
challenges relating to IPR protection
that businesses face in India, which
combine to stifle investment and
discourage business expansion. The
weak enforcement of IPRs has been the
bane of businesses operating in many
emerging market economies, but this is
particularly so in the case of India. Our
research has revealed that some of the
ongoing challenges in the area of IPR
protection include the following:
! Little focus on the enforcement of
IPR laws. As a result, penal provisions
fail to act as a deterrent to
infringements
! The system of IPR enforcement and
regulation is highly fragmented,
comprising several government
departments and agencies in disparate
regions of the country
12
! Local enforcement authorities often
have limited understanding of IPRs,
and central and state governments’
allocations of resources towards
building IPR-related capabilities and
infrastructure are inadequate
Poor enforcement of IPRs creates
losses for both businesses and tax
authorities. Intellectual property
piracy has been rising in India, and is
estimated to be worth several billion
dollars annually. Some of the sectors
that traditionally suffer include
business software, pharmaceuticals,
and the movie and music industries.
But as technology, knowledge, and
ideas become increasingly important
drivers of economic growth in India, so
too will IPR protection grow to become
a pressing issue for businesses in many
other industries.
India has already taken a number of
significant steps in building its IPR
protection capacity through WTO-
compliant legal statutes. Additional
policy initiatives, developed in
consultation with MNCs, would help
build a more stable and secure
operating environment. Some of the
actions the international business
community would welcome include:
! The establishment of a common
body or taskforce to centralize control
over the enforcement of IPR laws, as
well as improving the efficiency of the
IPR administration
! The allocation of additional
resources towards building IPR-related
capabilities and infrastructure
! Improved capabilities for judicial
authorities in the area of IPR protection,
such as fast-track legal processes for
IPR infringement, and the adoption of
deterrent-level sentences
Reducing barriers to the
free flow of people
With knowledge becoming an engine
of growth across sectors, talent has
become a strategic developmental
asset. India is becoming an
increasingly knowledge-intensive
economy, producing millions of highly-
educated graduates every year. The
Indian diaspora is also beginning to
return to India in increasing numbers.
India is thus well-positioned in terms
of its talent base when compared to
many other emerging market
economies, and has become a home to
a large and growing pool of engineers,
scientists and other professionals.
Reducing barriers to the free flow of
people is fundamental to maintaining
a hub of talent excellence in India,
since it enables talent to come in from
abroad and move about the country
with relative ease. However, our
research uncovers a number of barriers
that continue to block the flow of
talent both to and within India. Some
of the challenges to the free flow of
talent in India include:
! People moving to India from abroad
have difficulty acquiring and renewing
work and residence permits, a process
riddled with delays
! A relatively lower quality of social
amenities and infrastructure (e.g.
education, healthcare, living
conditions) discourages Indian diaspora
talent as well as MNC employees from
working in India or outside the key
metropolitan cities
! The quality and extent of
communication and power
infrastructure is often not up to the
standard required to support virtual
and real-world flows of talent at an
affordable cost
The financial crisis and recession
represent an opportunity to redefine
India as a destination for talent from
around the world. With rising
unemployment in many Western
economies, competition for the world’s
best and brightest minds is increasing.
Returning professionals are a
particularly valuable asset to MNCs
operating in India, as they bring global
experience and act as conduits for the
exchange of new ideas. It is therefore
of increased significance today that
policymakers and business leaders act
to address these barriers to talent
flows in India. Such actions might
include:
! A simplification of immigration and
processes for obtaining work visas for
new entrants to India
! Supporting foreign talent acquisition
by offering quality-of-life incentives
(e.g. healthcare benefits, pensions) to
foreigners and Indians living abroad, as
the Chinese government is doing
fundamental to managing change.
Multinationals also play a critical role
in India both as drivers of productivity
improvements and as channels for
investments and new assets that
improved productivity will attract into
the country. This chapter analyses the
challenges and opportunities that can
engender those advances, focusing on
the two crucial areas in which step-
changes in productivity can be realized:
human capital and innovation.
The wisest investment:
human capital
India has three distinct advantages in
its human capital: a young
demographic, English language skills
and a culture that values learning and
is open to external influences. At the
same time, it is clear that productivity
and competitiveness are hampered by
education and training infrastructures
that are inadequate for the size of the
population and the speed of
improvement required for sustainable
growth. The deficits can be found at all
levels, including basic education,
vocational training and higher education.
Improving skills
Driving improvements in basic
education, including literacy and
numeracy, is vital to ensure that the
groups currently excluded from the
workforce are able to become productive.
This is particularly urgent in rural areas.
Similarly, improvements in vocational
training are essential if India’s
infrastructure constraints across the
country are to be addressed. Such projects
require commitment and engagement
from a variety of stakeholders at both
national and state levels. A good
example is the Prime Minister's
National Council on Skill Development,
which will launch a public-private
initiative to train 150 million people
across the country with the skills needed
to work in manufacturing.
India’s legacy of strong higher-
education institutions has served the
nation well in building the economic
progress of the last decade. But there
is no room for complacency,
particularly as only 12 percent of the
country’s population enrolls in higher
education, compared to 30 percent in
Brazil, 23 percent in China, 75 percent
in Russia and 82 percent in the United
States.29 Moreover, Accenture analysis
shows that despite spending more on
each student in its higher education
system than Brazil, China, Russia,
South Korea and Singapore, India
performs worse than these countries
when compared to specific measures
of delivery and innovation, access and
inclusiveness and internationalization
of their higher education systems.
MNCs continue to play a critical role in
bringing new ideas and investments
into India’s education system. There is
an inherent self interest for MNCs to
support and build the skills of their
future employees, suppliers, customers
and partners. By investing in the
nation’s education levels, MNCs are
improving the productivity and growth
potential of their business as well as
improving the expected returns on
their investments in India. MNCs in the
IT industry have been particularly active
in encouraging and investing in solutions
to address India’s education deficit,
often partnering with government
bodies or non-governmental
organizations and frequently utilizing
technology-based solutions in order to
21
maximize the reach and impact of
their efforts. For example, Microsoft’s
‘Shiksha’ project provides IT education
to school teachers, having already
made 350,000 teachers technology-
literate, able to utilize these skills in
their profession and capable of passing
them on to their students.
Growing the workforce
India’s productivity is further
hampered by the relatively small
proportion of the population that
graduates from the education system
into the skilled workforce. The IT
industry, which represents as much as
5.9 percent of the country’s GDP, still
employs only 2.23 million of India’s
750 million-strong working-age
population.30 Further, less than half of
female higher-education graduates
join the economically active population
(see Figure 8), and many of the highest
achievers in India’s schools continue to
seek work abroad, even if this trend
has recently slowed.
Action needs to be taken on several
fronts. For example, policymakers and
employers can bring more women into
the workforce by embracing flexible
working options and proper maternity
provisions. Training and education
must move beyond traditional systems
characterized by hierarchy to
emphasize critical thinking, personal
resourcefulness and teamwork.
Training and education courses should
allow participants to test their own
ideas and define their own problems to
solve. MNCs can play an important role
in bringing innovative learning
techniques and policy
recommendations from their disparate
experiences around the world.
It is in the interests of companies
across industries continuously to
improve the training of their workers,
and to invest in the development of
employees and service providers at
every skill level. The case studies in this
report highlight some of the initiatives
being carried out by multinationals in
India. In more enlightened companies,
innovative models are being utilized to
keep skills continually updated, such as
24-hour online training courses and
tie-ups with academic institutions. For
example, in 2007, Unilever introduced
an e-learning platform offering a range
of 3,000 courses accessible by
employees anywhere in the world, at
22
Figure 8: Economically active women in India as a proportion of total
female population, 2007 (percent)
80
70 68%
60 57%
50
40
30
20
10
0 According to the respondents to our
China Brazil
Source: International Labor Organization
any time. However, according to the
World Bank31, only 16 percent of Indian
manufacturing firms provided in-
service training to their employees,
compared to 92 percent in China. This
shortfall, if not addressed, will inevitably
see India losing out in FDI and global
competitiveness in the longer term.
Innovation:
the virtuous circle
Alongside the capacity to maximize
human capital, innovation is a critical
factor in sustaining productivity
improvements. Typically, successful
players in the Indian market use a
high-volume, low-margin business
model, finding fresh and inexpensive
ways to deliver existing technologies
to more people and places: what some
call low-cost innovation. An example
would be Mango Technologies
launching an Internet-enabled phone
designed to achieve maximum
functionality out of a modest handset
with limited memory, lower processing
capability, slower data download and
smaller screens. Multinationals in India
have been keen to leverage these kinds
of innovations to bring them closer to
the country’s massive and growing
consumer markets.
The evidence that India possesses the
raw materials for innovation can be
seen in the number of multinational
companies that have been attracted to
set up research and development
(R&D) centers in the country. A 2007
survey by the World Bank found that
more than 300 multinationals had set
up R&D and technology centers in
India in recent years. In fact, these
55%
50%
34%
Russia South Korea India
R&D centers account for over 60
percent of the US$9.35 billion R&D
off-shoring industry. This is projected
to grow to be a US$21.4 billion
industry by 2012.32
These centers of innovation have
generated the sharing and
multiplication of knowledge and skills
across India’s workforce through
technology transfer and through
unplanned technology spillovers. For
example, Texas Instruments’ advanced
communication systems helped Indian
companies emulate leading practices
and move towards the development of
offshore capabilities. Indian suppliers
and partners of multinationals can
learn from MNC best practice,
generating a virtuous circle of
innovation and wealth creation.
Innovation is not restricted to products
and marketing, however. In the same
way that India has been able to attract
investment from around the world to
set up R&D centers, there is an
opportunity to position the country as
an ideal test bed for a variety of
innovative business models. India’s
large and diverse populations, its
proficiency in English and variations in
infrastructure and distribution
channels allow a variety of business
models to be tested in the same
location; covering mass low-income
targets, high-end luxury consumers,
and a variety of tastes, cultures and
religions.
Simplifying the
bureaucratic ‘experience’
Our interview-based research suggests
that, while MNCs are experiencing an
increasing ease in doing business in
India, more needs to be achieved in
order to enhance the value of their net
contribution. In order to attract FDI,
central and state governments have
been implementing a number of laws
and measures to remove regulatory
and procedural barriers to the
establishment of foreign enterprises.
survey, while this has made entry by
MNCs into India easier, establishing
and expanding within India is still a
‘challenging experience’ (see Figure 4).
A significant number of respondents
said that the Department for Industrial
Policy and Promotion (DIPP) and the
State Single Window cells provide
initial support for new entrants “but
there is little support thereafter”. Our
research also emphasized that time-
sensitive government bureaucracy is a
top factor in determining whether
MNCs choose to invest and expand in
India.
Other key bureaucratic challenges in
India include the following:
! There are often approval hurdles
that emerge at state and local
government level
! MNC executives are often surprised
by a range of new approval requirements
that they did not know existed prior to
establishing operations. Moreover,
there is little support from government
in navigating these additional hurdles
! There are a number of government
departments and agencies that exist to
aid the overall approval process.
However, little is known by business
leaders about these support systems
Many of these challenges result in
unexpected delays and higher costs for
businesses—discouraging MNCs from
setting up and expanding in India.
Addressing these inhibitors now could
not only spur investments, but also
help differentiate India from its rival
economies. The central and state
governments have already been
implementing a range of laws and
measures to remove regulatory and
procedural barriers associated with the
establishment of MNCs in India.
However, in order to launch India into
Figure 4: Problems with India’s business environment identified by
MNCs and industry bodies
Multiple interpretations of
tax regulations
Unfavorable policies and regulations
Procedural delays
Corruption
IPR enforcement
Other issues
Source: Accenture/Confederation of Indian Industry Survey
the next phase of growth, and position
it ahead of the other BRIC economies,
further action is needed to enhance
the overall bureaucratic experience.
Key actions would include:
! Enhancing coordination between the
central, state and local governments
about approval processes for foreign
businesses
! Improving lines of communication
between governments and newcomer
businesses regarding the overall
approval processes, including
requirements at the central, state
and local levels
! Facilitating support from government
departments and agencies beyond the
initial stage of setting up operations
Rationalizing taxation
A predictable business environment
includes a stable and easily
understandable tax system. Along with
the process of economic liberalization,
India’s complex tax system has been
undergoing significant change, bringing
both a rationalization and reduction in
corporate tax rates. The Government of
India is now undertaking an effort at
significant tax reform through the
Draft Direct Taxes Code 2009. The
Code is ambitious and represents a
watershed in Indian tax policy, seeking
to promote tax compliance, introduce
a single Goods and Services Tax,
simplify tax language, and reduce the
scope for tax disputes.
72%
59%
46%
36%
28%
28%
However, many MNCs operating in
India still face a complex network of
tax structures and mechanisms—an
area where India lags behind Brazil,
China and Russia. Business executives
operating in India told us that
navigating the Indian tax system
remains a significant challenge.
Around 70 percent of MNCs surveyed
and interviewed are of the opinion that
the reforms in the tax administration
that have occurred to date, especially
with regards to implementation and
interpretation of tax statutes at the
ground level, have been inadequate.
Some of the key challenges in the area
of taxation include:
! Laws are often interpreted in
different ways by different tax
authorities, as well as by different
officials within the same tax authority
! Tax authorities aggressively use their
powers to conduct investigative
processes at early stages, and to
pressure companies into paying taxes
before a full audit is in place
! There are significant costs and
business disruptions resulting from the
implementation of amendments to tax
statutes with retrospective effect
! Significant delays are often created
by transfer pricing issues
These challenges combine to create a
‘high-stress-low-trust’ tax
environment. India must address these
challenges in order to attract the
capital and skills needed for the next
11

Chapter one:
Laying the foundations
Just as MNCs have been at the heart of
India’s growth story to date, so too
they will play an integral role in
creating the next chapter of economic
growth. MNCs can be key facilitators
of global economic integration and can
help link local and global supply
chains. However, policies must be
aligned to allow MNCs to function
effectively.
Over the past decade, India has
benefited from significant inflows of
Foreign Direct Investment (FDI). MNCs
have invested over US$100 billion in
India during the last eight years alone.
Between 2000 and 2007, FDI inflows
into India grew at a compound annual
growth rate of 30 percent, compared
to an average figure of 14 percent for
other emerging markets.5
However, the Indian economy still
faces a number of challenges that
continue to act as impediments to
investment and growth. Some of these
challenges include overly bureaucratic
approval processes for foreign MNCs
registering in India, as well as
difficulties in accessing talent pools
and critical infrastructure. These
10
The role of MNCs in education Addressing India’s human capital challenges
and maximizing the opportunities is both
Multinationals are undertaking initiatives complex and urgent. It requires leadership
in a variety of areas to help drive and commitment from government (at
increased productivity through education, national, state and local levels), business and
training and innovation promotion. Some civil society. It also requires innovative
of these are as follows: thinking to achieve results at speed and
scale. Beyond the mobilization of resources
Supporting basic, and high-value skill
and structuring of initiatives, it requires a
levels around the country: recognizing
cultural shift in India’s attitudes and
the need to improve basic IT skills across
approaches to learning, as well as its
the country, Microsoft set up Project
expectations from the workforce. Important
Shiksha (see previous section), which has
levers for change include the following:
given IT training to over 350,000 school
teachers. Intel has instituted programs to ! Identifying and measuring outcomes:
train India’s future software developers. improving productivity requires rigorous
The Intel Academic Community, which targets to be set at all levels of the education
works with universities in 72 countries, system, accompanied by transparent and
launched a Center of Excellence at the consistent performance measurement
MSRIT campus in Bangalore with the aim
of training 300 faculties from 155
! Aligning learning objectives: business
leaders, including from MNCs, must work
institutes of the Visvesvaraya
Technological University (VTU) as well as with policymakers in shaping the nation’s
human capital strategy, to ensure an
influencing the undergraduate curriculum.
challenges may explain India’s together to address these key
alignment of needs and objectives
comparative lagging behind the other challenges. The global economy is now Using technology to up-skill the
! Promoting inclusiveness: the urgency for
BRIC (Brazil, Russia, India and China) inching towards recovery, and financial workforce: Hindustan Unilever is
economies when measuring the markets are beginning to stabilize.
constantly working to keep its workforce progress in education and skill levels must
volume of FDI inflows. In 2008, India Many MNC executives will now begin
attracted US$42 billion in FDI, to scan the horizon for the most equipped with the latest skills. In 2007, cut across geographies, social groups and
compared to US$108 billion in China, attractive destinations for investment. Unilever introduced an ‘e-learning gender
US$70 billion in Russia and US$45 India has the opportunity to be a part
billion in Brazil (see Figure 3).6 of this next chapter of global platform, which offers 3,000 self-learning ! Creating the innovation mindset: India
investment and growth but only by courses over the internet, allowing them
To propel the Indian economy towards
addressing the outstanding obstacles
needs an education system that requires
a new phase of growth, policymakers
to business confidence. to be accessed by any Unilever employee, students to be critical in their thinking and
and business leaders will have to work
anywhere, at any time. resourceful in driving their own learning
Figure 3: FDI inflows into BRIC countries, 2005-08 (US$ billions)
Targeting under-employed segments of
120 India Russia Brazil China
108 the population: JCB, the UK-
100 headquartered manufacturer of
84 engineering vehicles and diesel engines,
80 73
72 70 reaches out to create employment
opportunities for under-employed part of
60 55
42 45 the workforce, such as retired army men.
40 35
30
25
20 19
20 13 15
8
0
2005 2006 2007 2008
Source: United Nations Conference on Trade and Development (UNCTAD)
23
Overcoming constraints to
innovative growth
Despite this progress and potential,
research activity by domestic Indian
companies remains low (see Figure 9).
According to World Bank statistics, of
the top 50 applicants for patents in
India between 1995 and 2005, 44 were
foreign firms. Moreover, the
innovations and patents emanating
from these research centers have
evolved almost in isolation from India’s
academic institutions. Further, as has
been discussed in chapter one, some
MNCs are reluctant to invest in R&D in
India because of perceived weaknesses
in intellectual property administration
and enforcement.
Scaling is also a critical issue. India has
sometimes been labeled “a graveyard
of good ideas” due to the large number
of innovative and successful initiatives
that are piloted or implemented
without reaching enough scale to
make a significant national impact.
Multinationals have played an
important role in developing successful
models that balance the benefits of
global scale and knowledge with local
insight and responsiveness. The best-
known examples include the successes
of consumer goods companies like P&G
and Hindustan Lever in developing
innovative business models that bring
global products to the most isolated
Indian communities in a locally
relevant way.
Looking forward across broader
industry groups, methods of achieving
scale include the development of
clusters of excellence around key
themes, and the utilization of
technology to multiply impact and
reach. Technology-based solutions are
replicable, scalable, cost-efficient and
consistent in quality. Moreover, the
application of technology seems
particularly well adapted to India’s
need for solutions that reach across
difficult terrain and long distances and
that can easily be tweaked to respond
to a diversity of languages and
cultures. Multinationals can play a key
role in developing and implementing
the technology solutions that can
connect India’s disparate success
stories and unlock the country’s
innovative potential.
24
Figure 9: Percentage of patent applications registered by domestic companies
(latest figures percent)
80 75% 74%
70 62%
60
50
40
30
20 18%
10
0
South Korea Russia China India
Source: World Intellectual Property Organization
With competitive pressures increasing
from around the world, there is an
urgent need for India to build a more
sustainable and healthy innovation
ecosystem for future growth. The
national government has recognized
some of this by tripling the R&D
allocation in the Eleventh Five Year
Plan (2007–2012) with the target of
bringing R&D investment to 2 percent
of GNP, closer in line with the average
for developed countries of
approximately 2.5 percent.
This investment requires buy-in from So while significant strides have been Figure 2: Percentage distribution of survey responses across sectors
all stakeholders, however, including made in recent years, there is still
government, business and academia. some way to go before India can truly
There are signs of progress, such as the 8% Banking and Insurance
take its place at the top table of globally 15%
National Entrepreneurship Network competitive economies. Going forward, Chemicals and Petroleum
(NEN), a non-profit initiative founded 15%
MNCs are crucial to the sustained 5% Communication and Entertainment
in 2002 to educate and support the economic growth of India, both in
Industrial Equipment and Systems
next generation of entrepreneurs in terms of driving inward investment
Consumer Durables and Other
India. Co-founded by five of India’s and through the potential positive 10%
8% Consumer Products
premier academic institutions and effects they have on education, skills
Food Products and Beverages
collaborating with over 280 Indian and innovation. This report analyzes
Automotive
graduate institutions, the NEN helps to the role of MNCs in the Indian
build entrepreneurship programs and economy, and the ways in which policy 15% 24% Business Services*
create a pipeline of young innovators. initiatives can be aligned to increase
More recently, the Confederation of co-operation between governments, Source: Accenture/Confederation of Indian Industry Survey
Indian Industry set up a committee to MNCs and all other stakeholders.
*Business Services include consulting, software,
establish long-overdue formal real-estate and housing services
The report is drawn from Accenture’s
communication between its members
extensive research into the growth This research and the resulting analysis
and academia. Further efforts are
opportunities facing India and the role outline opportunities for growth in
needed to include business in policy
of MNCs in realizing those four areas, and highlight the
discussions on education, training and
opportunities. In addition, this report challenges faced in each. These
national innovation capacity.
draws on in-depth interviews with key imperatives are set out in the chapters
Multinational companies can play an
executives from MNCs, officials from of this study, which look in turn at:
important role in these discussions,
the Government of India and other foundational factors for growth; the
bringing ideas and lessons learned
crucial stakeholders, undertaken in co- possibility for growth in new sectors;
from other countries.
operation with the Confederation of the drive to improve current levels of
Indian Industry (CII). The MNCs productivity; and the ways in which
involved in the study account for a India can position itself at the heart of
significant portion of revenues of the new multi-polar global economy.
MNCs in India and represent a true
cross-section of sectors (see Figure 2).
09

Introduction
After a decade of unprecedented
growth, India faces new challenges in
the changing world economic order as
it emerges from the downturn. The rise
of the multi-polar world—where
economic power is increasingly
diffused across the global
economy—presents both a major
opportunity and a challenge to the
Indian economy.
While India has been at the vanguard
of the emerging markets that have
redrawn the world’s economic
geography, comparisons with other
economies confirm that India still
faces a number of challenges in
achieving greater competitiveness. For
example, according to the World
Economic Forum’s Global
Competitiveness Report 2009-10, India
ranks at 49th position. Even when
compared to emerging economies
alone, India still only ranks at 23rd
position (see Figure 1).
08
The role of MNCs in promoting
innovation
MNCs are involved in a number of projects
and initiatives to improve the innovative
capacity of the Indian economy, driving
economic growth and generating wider
spillover benefits in terms of increased
knowledge and skills transfer. This is
occurring in a number of ways:
Undertaking low-cost innovation:
Microsoft works to develop high-tech
offerings which help bring IT to the largest
possible audience, including the poor. For
example, one localization program,
‘Bhasha,’ has now made MS Windows and
MS Office available in 12 Indian languages.
Sharing hardware is a good way of keeping
costs down. To help people share PCs, the
Microsoft India Development Centre (MIDC)
has recently developed Virtual PC 2007, an
Figure 1: World Economic Forum (WEF) Global Competitiveness Report Improving India’s capacity to innovate
2009 –10 Rankings is critical to setting the country’s
trajectory of economic growth.
Emerging economies All economies Innovation capabilities attract
investment, generate greater returns
Singapore 1 4 and set a path for more sustainable
Hong Kong SAR 2 11 growth. India possesses many of the
raw materials to unleash innovation-
Taiwan, China 3 12 led growth and we have already seen
South Korea 4 19 great examples that place India in a
strong position among emerging
Qatar 5 22 economies. At the same time, there is
United Arab Emirates 6 23 no room for complacency. Concerted
efforts are required by policymakers,
Malaysia 7 24 educators and businesses across a
China 8 29 number of areas. Important levers for
change include the following:
Chile 9 30
! Nurturing an innovation
Czech Republic 10 31 ecosystem: clusters of innovation arise
India 23 49 from partnerships between academia,
business and financiers, all incentivized
by government policy
Source: World Economic Forum Global Competitiveness Report 2009 –10 ! Getting the scale right: technology
www.weforum.org can multiply the penetration and reach
of business solutions and best practice
ideas
application which allows a single computer
to run one or more virtual machines, each
with its own operating system.
Conducting world-leading research: Intel
uses India as a base for some of its most
complex innovation. Recently, a pioneering
microprocessor was developed by the India
R&D team.
Encouraging the entrepreneurial sprit: JCB
facilitates entrepreneurial activity in India
through its efforts to create self-employment
opportunities for over 5,000 people.
Consumer goods company Amway’s
approach encourages entrepreneurial
activity in the broader environment by
providing free and unlimited training to its
distributors to help them grow their
businesses. In 2007, over 29,000 training
sessions were held reaching over 1.5 million
Amway distributors.
! Positioning India as a test ground
for innovative business models: India
possesses the raw materials – including
a proven track record, English language
skills, an entrepreneurial spirit and
large, distinct and varied consumer
groups—to market itself as the world’s
pre-eminent test-bed for innovative
business models. As with the IT
services boom, MNCs would play a
critical role in bringing tremendous
technology, knowledge and capital
spillovers into the economy
25
Chapter four:
Projecting India
India owes much of its recent
economic growth to its open position
within the global economy, which has
seen significant levels of inward
investment and MNCs choosing India
as a location for a number of business
functions. India has been among the
most attractive destinations for
investment worldwide, ranking second
only to China on the FDI Confidence
Index in 2007.
However, if India is to maintain and
build on this position of strength, it
needs to exploit further opportunities
to adopt a more open position and
integrate itself within the global
economy. At the political level, India
should utilize the opportunities arising
from its expanding global footprint of
interactions and relationships with the
rest of the world to encourage the
exchange of knowledge and skills.
Policymakers can take a lead by
ensuring that India is at the heart of
international forums of decision-making
(e.g. the G20, the Doha round of trade
talks and the Copenhagen Summit) as
well as making sure that its businesses
are fully integrated into global supply
chains and investment flows.
26
Beyond this, there are three areas
where action can be taken in order to
help realize the next phase of
economic growth. MNCs can act as
facilitators in each of these areas.
Integrating local enterprise
with global business
India has a wealth of small- to
medium-sized enterprises (SMEs) that
can collectively generate significant
levels of growth to the Indian
economy. However, the key to realizing
their potential is to connect them to
global supply chains through MNCs.
Given India’s size and the number of
small- to medium-sized enterprises
(SMEs) that have developed (particularly
in rural areas), integrating these
enterprises as part of a wider business
ecosystem offers the potential to
increase growth at both local and
global level.
For example, Cadbury is supporting
Indian farmers with technical advice to
show them how to improve yields of
cocoa. Through this support, it is hoped
that Indian farmers can first achieve
self-sufficiency before starting to
export their products. The ambition is
to increase production from 10,000
tonnes a year at present to 150,000
tonnes by 2020, which would constitute
3 percent of global cocoa production.
Tapping into the Indian
diaspora
India’s population is one of its greatest
assets. While numerous steps are being
taken to improve the skills and
education of the domestic population,
the potential afforded by the huge
Indian diaspora population should not
be underestimated. With 20 million
people of Indian origin in 70 countries,
India has a pan-continental presence.33
Firstly, these populations represent a
significant consumer market in their
own right, as well as a potential
springboard to test products and enter
new markets in developed economies.
For example, Dabur India Limited,
which specializes in health and beauty
products, sells to customers in the
United Kingdom and United States,
owing to the large Indian populations
in these two countries (a combined
total of more than 2 million in 2006).34
! Overcome constraints to innovation.
Improving the networks between
innovation stakeholders (such as
business, government and academia)
and developing clusters can help scale
innovation over a larger area
Position India at the heart of the
global economy: ensure that India
continues to act as a key political
player on the global stage and realizes
the full benefit of international flows
of investment, talent and technology
! Bridge the gap between local
enterprises and global supply chains
e.g. ensure that rural infrastructure
and supply chains are of sufficient
quality to facilitate the efficient
transport of goods
! Tap into the Indian diaspora e.g. set
up a government initiative to target
and leverage the Indian diaspora more
effectively so that they can act as
‘ambassadors’ for investment opportunities,
particularly in new technology
! Capitalize on India’s culture e.g.
provide incentives for creative
industries and talent to locate in India,
building on India’s burgeoning creative
sectors to generate growth and
strengthen India’s brand
This report demonstrates how MNCs
are already contributing to growth in
these areas, as well as how they can
continue to build on best practices and
help generate growth in the future. The
report also sets out recommendations
for policymakers that will help create
the right regulatory and administrative
environment for inclusive growth.
Conclusions
In this new era of changed global
dynamics, what will be important for
India as it tries to unleash the next
phase of economic growth? The
following imperatives should guide
India as it embarks on this journey:
! Move existing traditional industry
sectors up the value chain while
exploiting potential in new sectors
! Build on the existing excellence and
reputation for IT to move into new
technological sectors e.g. cloud
computing and digitization
! Make best use of India’s
demographic and educational
advantages to better utilize its
workforce, particularly among the
female population and in rural areas
! Increase the productivity of the
workforce through enhanced education
systems and more support for innovation
! Capitalize on India’s open position
in the global economy (in terms of
political, economic and cultural linkages)
in order to maximize flows of FDI
These investments will pay dividends in
the future and set India on a path towards
sustainable economic growth. MNCs
will be crucial in all of this, not least in
terms of technology transfer, sharing
knowledge and skills, and growing new
markets. By working with policymakers
and as a part of the fabric of Indian
society, businesses can help achieve a
collective vision of prosperity.
07
Key areas for growth
Based on Accenture’s interviews with
senior business leaders, supplemented
by extensive research, this report sets
out four key areas where action is
needed to put India on a path to more
sustainable, inclusive growth:
Reinforce the foundations of growth:
enhance the growth prospects of
businesses operating in India by
creating a more predictable and
enabling environment for business
! Simplify the bureaucratic experience
e.g. enhance coordination between the
central, state and local governments
on approval processes for foreign
businesses both before and after set-
up of operations
! Rationalize taxation e.g. improve
awareness and communication with
business about the mechanisms that
exist to reduce transaction costs in
taxation and bring in more
predictability to the tax system
! Safeguard Intellectual Property (IP)
e.g. establish a common body or
taskforce to centralize control over the
06
enforcement of IP laws, as well as
improving the efficiency in the
administration of IP rights
! Reduce barriers to the free flow of
people e.g. simplify immigration and
processes for obtaining visas for new
entrants to India
! Improve infrastructure e.g. upgrade
railway stations and existing
technologies, including creating India’s
first high-speed rail network between
major metropolitan cities
Realize growth in new sectors:
capitalize on India’s potential in new
industry sectors as well as improving
the value addtion in traditional sectors,
helping the economy move to a more
sustainable growth model
! Reduce dependence on, and increase
the value of, agriculture e.g. increase
support for agricultural interventions
(such as irrigation)
! Develop both basic and high-value
manufacturing e.g. MNCs should play a
significant role in both shaping and
delivering the training needed to
supply basic manufacturing workers
(see next chapter on education) with
leading-practice knowledge, while
driving advanced engineering skills
! Invest in sunrise industries, such as
renewable energy, healthcare and
pharmaceuticals, new technologies
(e.g. cloud computing) and cultural
industries (e.g. design, food and
tourism)
Improve current levels of productivity:
make better use of India’s current
assets and capabilities to enhance its
competitiveness in key areas of the
economy, such as skills and innovation
! Promote skills development e.g.
MNCs should continue to work with
local education establishments to
shape curricula and ensure that skills
are relevant to the workplace
! Increase the proportion of the
population engaged in education and
productive employment. Policymakers
and employers can bring more women
into the workforce by embracing
flexible working options and putting in
place modernity provisions
But beyond this opportunity to reach
new consumers, the diaspora
population represents a significant
source of potential talent, many of
whom have been educated in Western
economies and possess the skills that
MNCs looking to locate in India will
value highly. Indeed, many MNCs in
India have sought to bring the Indian
diaspora back into leadership positions
where they can combine their
knowledge of Western business
practices and working cultures with an
appreciation for local norms. This helps
ensure that the Indian economy keeps
pace with the latest developments in
Western business education as well as
continuing to represent a highly
attractive location for other MNCs
looking to establish operations in India.
The Indian diaspora can also act as
‘ambassadors’ for their home country
through promoting greater
understanding of the opportunities
within the Indian economy for
investment and growth. By marketing
actively investment opportunities to
the diaspora, MNCs can tap into new
sources of growth as well as spreading
the word to a larger potential pool of
investors. Indeed, this has already
happened in the context of the IT
industry, where the government made
a conscious effort to communicate and
interact with the global Indian
diaspora with hopes of encouraging
investment in the country from those
who have emigrated and become
successful in other nations. A similar
approach must be taken in respect to
India’s new growth industries,
particularly those related to technology
where the existing reputation is strong.
Exporting India’s culture:
Bollywood and beyond
India’s business environment is one of
the most attractive in the emerging
world, not least due to the high
number of English speakers as well as
the global mindset exhibited by many
Indians. However, other emerging
economies are catching up. Increased
investment in education in many
emerging economies means that
India’s traditional advantage here is
being eroded. India needs to capitalize
on this advantage while it still can.
Doing so will require India to focus on
how it can build on its cultural
heritage and creativity. For example,
other emerging markets have taken
steps to leverage culture as a means of
making their living environment more
attractive to MNC employees. Abu Dhabi
has signed deals to develop offshoots
of both the Louvre Museum in Paris
and the Guggenheim Museums in New
York and Bilbao; Singapore is planning
to have the Cirque du Soleil play a key
role in the new Sentosa cultural
district. More active promotion of
India’s rich cultural heritage could also
help develop its tourism industry.
India’s share of international tourist
arrivals globally and in the Asia Pacific
region during 2008 was 0.58 percent
and 2.92 percent respectively. Within
emerging economies, these figures put
India well below China and Mexico
(see Figure 10). In spite of the presence
of historical and cultural sites across
the country, during 2008, only five of
India’s 28 states accounted for around
67 percent of the total foreign tourist
visits into India.35
27
Finally, promoting the cross-fertilization
of knowledge and capabilities can drive
new, innovative business models and
attract investment. For example, while
India’s growth to date has been driven
in large part by the IT sector, there are
opportunities for MNCs in adjacent
industry sectors that can capitalize on
this e.g. advertising and digital media.
In developing these industry sectors,
India will not only generate increased
economic growth but also enhance
even further its brand overseas. The
India Brand Equity Foundation has
already undertaken extensive efforts to
promote ‘brand India’ abroad: the
talent, markets, growth and
opportunity that exist in the country.
To integrate itself further into the
global economy, India needs to build
on this and promote India as the new
culture capital of the world and hub of
new digital industries.
Placing India at the heart of the global
economy means building on its
existing success in this area: in being
open, in being an attractive location
for investment and in promoting a
strong brand around the world. The key
for India is to realize that other
Figure 10: International tourist arrivals, 2008
% of total international tourist arrivals
France
US
Spain
China
Italy
UK
2.76
Ukraine
Turkey 2.71
Germany 2.7
2.45
Mexico
India 0.58
Source: Indian Ministry of Tourism; ‘Tourism Statistics at a Glance 2008’
28
emerging economies are catching up
and starting to exploit their cultural
industries and diaspora population to
great effect. Our analysis identifies the
following levers to realizing growth in
this area:
! Providing incentives for creative
industries and talent to locate in India,
building on India’s burgeoning creative
sectors to generate growth and
strengthen India’s brand
! Setting up a government initiative
to target and leverage the Indian
diaspora more effectively so that they
can act as ‘ambassadors’ for
investment opportunities, particularly
in new technology sectors
! Using MNC supply chains to connect
local enterprise and global businesses
8.6
6.29
6.21
5.75
4.63
3.28
The importance of
multinational companies
Multinational companies (MNCs) will
feature prominently in efforts to
overcome these challenges and drive
the next phase of sustainable
economic growth, not least by driving
inward investment, nurturing talent
and encouraging innovation. For
example:
Investment: MNCs have invested over
US$100 billion in India since 20001,
with foreign direct investment (FDI)
inflows having increased at a rate of
about 30 percent as compared to 14
percent for all emerging markets.
Talent: MNCs have been at the heart
of up-skilling the Indian workforce,
making it one of the most competitive
talent pools in the world in a number
of industries (especially information
technology). In a recent Accenture
survey of business leaders around the
world, India ranked second only to the
United States in terms of the
attractiveness of its top management
talent.
2 mid-2008—the country still does not
Innovation: a 2007 study by the World
Bank found that 300 MNCs had set up
R&D and technology centers in India,
accounting for 60 percent of the R&D
off-shoring industry. With these centers
comes increased economic growth and
spillover effects into the wider Indian
economy (e.g. through knowledge
transfer and the flow of new skills).
In recent years, the relationship
between India’s domestic businesses
and multinationals has proved to be a
unique competitive advantage for the
nation, generating a creative dynamics
of knowledge transfer, investment and
innovation. As a result, India’s businesses
are arguably the best adjusted to the
global economy among emerging
economies, with a high proportion of
higher-value and service-sector
contributions as well as an inclusive
and global mindset.
Further potential
More, however, is possible. Although
India’s recent growth has been
impressive—second only to China since
rank as high as it could on comparisons
of national competitiveness. For example,
according to the World Economic
Forum, India ranks only 49th out of the
world’s most competitive economies—
23rd when compared only to other
3
emerging economies. And while a
comparable number of the world’s fifty
largest companies operate in China
and India, their combined turnover in
China is three times their turnover in
India.4 This report attempts to
understand and suggest ways to
address this shortfall, to set out how
the Indian economy can be best
aligned to encourage these investments,
and to show how MNCs can support
and amplify India’s next phase of growth.
Major new research
The report draws on a major research
project on MNCs operating in India
conducted jointly by Accenture and the
MNC Council of the Confederation of
Indian Industry. Business leaders from
more than a quarter of the MNCs in
India were interviewed to gain first-
hand insight on some of the challenges
they face and the broader role of
MNCs in India’s journey towards social
and economic growth.
05
Executive summary
The world has been shaken by the economic
downturn. Developed and emerging
economies alike have felt the full force of
its impact. India’s economy has seen a
slowdown after nearly a decade of
unprecedented growth, as its companies
have been vulnerable to the varying
fortunes of their customers, partners and
suppliers around the world. As we begin to
emerge from this crisis, there is a new
sense of urgency amongst business leaders
and policymakers to address long-term
challenges and exploit fresh opportunities.
The Indian economy will enter the recovery
period facing changed global competitive
dynamics, particularly from other fast-
developing economies, as well as the
ongoing need to confront persistent
domestic challenges in areas such as
04
infrastructure, education and healthcare.
However, in the political sphere there are
new administrations in many countries and
a re-elected Indian government unimpeded
by coalition politics. This presents a further
window of opportunity for businesses and
policymakers to work together to develop
constructive and collaborative solutions
that capitalize upon the country’s
strengths, develop new opportunities and
address the obstacles to achieving India’s
social and economic growth ambitions.
29
Conclusions: Overcoming the
challenges to growth
With greater integration into the world
economy, the effectiveness of
policymakers in shaping and
implementing policies to increase
flows of people, capital, products and
services will, as we have seen, be
fundamental to securing India’s future
growth. To climb the competitiveness
ladder, it is crucial for India to focus
on the following areas:
! Improve the overall business
environment by removing the barriers
and hurdles that may hinder MNCs and
domestic businesses as they seek to
achieve sustainable growth in India
! Reduce dependence on, and increase
the value of, traditional sectors of the
economy (e.g. agriculture) as well as
developing new, higher-value-added
industry sectors such as healthcare,
renewable energy and new
technologies
! Improve India’s productivity by
broadening its skills base beyond its
current centers of excellence and
fostering innovation on a national
scale
! Place India at the heart of the multi-
polar world by increasing the impact it
achieves on the global stage through
linking SMEs to global supply chains,
tapping into the Indian diaspora and
making better use of India’s cultural
heritage
MNCs must play a critical role in
achieving these objectives by nurturing
a globally integrated business
ecosystem driven by knowledge,
technology and talent. Several MNCs
have established globally significant
businesses in India by setting up
manufacturing and R&D facilities,
building and serving consumer markets
and establishing India as an export
base. They have complemented efforts
of local governments, institutions and
businesses in imparting skills to local
workforces and by promoting a culture
of innovation. There is great scope for
more to be done.
30
Contents
Executive summary 04
For policymakers, the Achieving success in the next phase of Introduction 08
India’s growth story will require closer
priorities must be cooperation between businesses and
policymakers than ever before. As the
Chapter one: Laying the foundations 10
! To take a lead in global forums in
order to embed India at the heart of world emerges from recession, this
new model of economic and social Chapter two: Combining old and new 14
the world economy
governance will be replicated across
! To simplify internal bureaucratic the globe. India has a number of Chapter three: Building capabilities for the future 20
processes, to rationalize taxation, and strengths that position it well to lead
to effectively police intellectual this new global order. Doing so will Chapter four: Projecting India 26
property rights require action on a number of fronts,
from the local to the international,
! To encourage the free movement of
with a focus on scaling activity more
Conclusions 30
talented labor, and to invest in
effectively and consistently. But with
transport, technology and social
commitment from business and
infrastructures
government alike, there are few limits
! To focus policy on encouraging to India’s potential.
higher-value in traditional sectors
(agriculture, manufacturing) and to
invest in innovation
! To align education more closely
with employment opportunity, and to
involve business leaders in shaping
human capital strategy
For MNCs the opportunities
for growth can be realized
by
! Working with local partner
organizations and government to raise
skill levels and invest in higher value-
chain activities
! Empowering rural populations to
open up untapped labor and consumer
markets
! Adopting imaginative responses to
India’s diversity, using technology to
scale operations
! Exploiting India’s advantages of
language and demographics to test
innovative business models
! Co-operating with government to
make training and education better
aligned with needs
03
Foreword
The world has changed significantly
over the last couple of years.
Businesses in developed and emerging
economies have been shaken by the
global downturn. Governments, in turn,
have scrambled to steady their
economies and put them on a path
towards recovery, using fiscal stimuli
and other policy instruments. Now, the
light at the end of the tunnel is
beginning to emerge and we are seeing
pockets of recovery in different parts
of the world.
The Indian economy will face a
changed global landscape as it enters
this recovery period. Emerging market
economies will acquire even greater
significance as the global economy
becomes increasingly multi-polar. India
will have to compete more fiercely
with its emerging-market peers, many
of whom will be more competitive
than before. In the political sphere,
new governments have recently taken
office in different parts of the
world—presenting new opportunities to
address long-term challenges such as
climate change and international
security threats.
As this new landscape takes shape,
India has the opportunity to position
itself as a leading international hub of
investment, human capital and
innovation—pushing ahead of rival
destinations in both developed and
emerging economies. Multinational
Companies (MNCs) are likely to feature
prominently in pursuing this ambition.
In the past, we’ve seen India’s ability to
attract foreign direct investment from
some of the largest companies in the
world. MNCs have now embedded
themselves as a part of India’s
economic fabric. Looking forward,
MNCs are looking to play a pivotal role
fostering the growth of small, medium
and large domestic enterprises across a
range of industries and linking them
into global supply chains.
But more is possible, and more is
required. This report, which draws on
interview-based research conducted
jointly by Accenture and the
Confederation of Indian Industry,
reveals some of the ongoing challenges
facing multinational businesses in
India and underscores priority areas for
reform—such as rationalizing taxation,
02
References
1 23
safeguarding intellectual property and
reducing bureaucracy, amongst others.
It also reveals some of the new growth
sector opportunities in India, such as
2
biotechnology, renewable energy and
emerging technological sectors like
cloud computing and digitization. Last,
3
it highlights those key areas that can
contribute to enhancing the nation’s
overall productivity and how India can
4
position itself at the heart of the global
economy by promoting itself more 5 Labour Organization.
effectively.
As we look towards the future with the 6 30
same optimism that has driven India’s
growth to date, there is a fresh 7
opportunity for government and
business in India to work together to
solve some of our common domestic
8
challenges and build a path towards
sustainable growth and prosperity. But
there are no guarantees or 9
entitlements about the future, only
possibilities. Our vision is to help India
engage with the global context around
10
us, positioning India as the preferred
international destination of investment 11
and business activity. We hope this
report will help outline the cooperative
12
steps that can be taken to make this
vision a reality. 13
14
Harsh Manglik
15
16
17
18
19
20
21
22
Based on the 9 years of FDI statistics International Energy Agency.
published by Department of Industrial 24
11th Five year plan of Ministry of
Policy & Promotion, Ministry of
New and Renewable Energy,
Commerce, Government of India.
Government of India.
Economist Intelligence 25
Technopak Advisors, ‘India
Unit/Accenture survey, 2009.
Healthcare Trends’ 2009.
World Economic Forum Global 26
IBEF, August 2009.
Competitiveness Report 2009-10,
27
www.weforum.org IBEF, July 2009.
Accenture analysis. 28
LABORSTA database, International
United Nations Conference on Trade
29
and Development (UNCTAD). UNESCO.
Ibid. NASSCOM Strategic Review 2009.
McKinsey, ‘Building India: 31
World Bank, ‘Unleashing India’s
Accelerating Infrastructure Projects’, Innovation’, 2007.
2009. 32
Zinnov, ‘R&D Innovation Council’,
India Brand Equity Foundation (IBEF), August 2008.
August 2009. 33
Evalueserve (2004).
Database of the Centre for 34
Monitoring Indian Economy (CMIE), Migration Policy Institute database.
August 2009. 35
Indian Ministry of Tourism, ‘Tourism
Reserve Bank of India, op. cit. Statistics at a Glance’, 2008.
Planning Commission, Government of
India.
CMIE, op. cit.
IBEF, September 2009.
Rabobank, ‘Indian agri-biotech
sector: Emerging scenario, issues and
challenges’.
CII/KPMG report, ‘India Pharma Inc. –
An Emerging Global Pharma Hub’,
2008.
IBEF, June 2009.
UNCTAD, ‘World Investment Report:
Transnational Corporations,
Agricultural Production and
Development’, 2009, p. 141.
CMIE, July 2009.
CMIE, August 2009.
CMIE, August 2009.
Automotive Component
Manufacturers Association of India,
‘Global Competitiveness of Indian
Auto Component Industry & Its
Sustainability’, 2009.
Ernst and Young, ‘Renewable Energy
Country Attractiveness Indices’, Q4
2007.
31
About Accenture
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capabilities across all industries and
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research on the world’s most successful
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177,000 people serving clients in more
than 120 countries, the company
generated net revenues of US$21.58
billion for the fiscal year ended
Aug.31, 2009. Its home page is
www.accenture.com
Disclaimer
This Report has been published for
information and illustrative purposes
Authors
Rajat Agarwal
Multinationals and India
only and is not intended to serve as
advice of any nature whatsoever. The
Tim Cooper A plan for progress
information contained and the Svenja Falk
references made in this Report is in
good faith, neither Accenture nor any Mamta Kapur
of its directors, agents or employees
give any warranty of accuracy nor Raghav Narsalay
accepts any liability as a result of
reliance upon the information, advice, Armen Ovanessoff
statement or opinion contained in this
Report. This Report also contains Dinu Poonacha
certain information available in public
domain, created and maintained by Mark Purdy
private and public organizations.
Aarohi Sen
Accenture does not control or
guarantee the accuracy, relevance,
timelines or completeness of such
information. This Report constitutes a
view as on the date of publication and
is subject to change. Accenture does
not warrant or solicit any kind of act or
omission based on this Report.