August 2014

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August 2014 This report is solely for the use of Zinnov client and Zinnov personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from Zinnov

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One of the world’s leading management consulting firms with a focus on helping organizations globalize and expand their business Started in 2002 with a focus on helping technology organizations globalize their operations Currently Headquartered out of Bangalore with operations in Silicon Valley, Houston, Delhi, Beijing and Singapore Evolution Service offering Customer Type Focus Areas Product Engineering & R&D services Outsourced Software product development Engineering Analytics Start-Ups Hi-Tech Companies Engineering & R&D Companies Service Providers Private Equity & VC firms Globalization Advisory Market Expansion Advisory Globalization Accelerator Platform Service Provider Advisory Innovation

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India has traditionally been a vibrant economy with strong economic fundamentals to support growth Expected increase in India’s share of global middle class consumption by 2020 Largest Consumer Market 13th ~3X Consumption as % of GDP 60% Share of services in GDP 57% Growth of Services Sector 12% Largest Labor Force 2nd Investment as % of GDP 35% $ 1 Tn Infrastructure investment during the 12th Five-Year Plan Consumption Driven Economy Services Led Economy Big Investments in Infrastructure Rank in FDI Confidence Index Survey 2nd India’s Trade to GDP ratio growth in last decade 2x Government’s perennial focus on improving the infrastructure has driven growth of Indian Economy High level of consumer spending ensures continued demand from the domestic market  India’s open-economy policy, initiated in 1991, has transformed India to a flourishing economy A large workforce and Services led economy have augured well for India’s growth Source: World Bank Data | AT Kearney FDI Survey 2012 Open Indian Economy

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Over the past half decade, Indian economy has however struggled to sustain the growth Real GDP Growth and Consumer Price Inflation (YoY Change) Foreign Direct Investment (USD Billion) INR Depreciation vs. USD 1Continuous rise in food prices and supply chain bottlenecks has led to Inflation Source: World Bank Data Global economic conditions and internal issues such as policy indecision, corruption and subsidies have hampered the “India Growth” story… Loss of confidence among the foreign investors and MNCs resulted in decrease in FDIs and foreign exchange rates

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The primary reason behind the economic struggle has been a weak government in the past 5 years Governance Related Factors Global Economic downturn affected India’s exports and services business Global Slowdown No strong figurehead emerged from the coalition government Leadership Crisis Slowdown of economic reforms made India an unsuitable destination to run business Policy Paralysis Improper action plan and poor allocation of funds resulted in delayed projects that led to overruns of 15 BN Implementation Bottlenecks Government accused of multiple scams such as $5bn Telecom Spectrum scam, $29bn Coal mine scam, etc. Corruption Source: Primary Interviews, Zinnov Analysis

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Disappointment with previous government led to an unprecedented mandate for a stable government SINGLE PARTY COALITION Non – coalition (single party) government at the center will allow for swifter policy making and reduce stakeholder confrontation leading to a stable government Electorate’s mandate for a Stable Government Empowered Government Source: Election Commission of India website, Zinnov Analysis

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Modi’s governance model has a proven track record of being decisive, reform-oriented and business-friendly Source: RBI data, Ministry of Commerce and Industry 1/5th of India’s total FDIs in the past 3 years Unemployment Rate against India ‘s 3.8 % Among all states in Economic Freedom Index* Manufacturing Jobs created in India $17.5 billion 1% 26% 1st Among states in number of SEZs 4th Smart Grid in India 1st The unprecedented mandate and the positive track record has instilled hope of an economic turnaround among the citizens and the investors

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Modi government has identified “5 Growth Levers” to accelerate India’s economic growth… 5 India’s Growth Levers As identified by Modi Source: BJP Manifesto, Narendra Modi Interviews 1 2 3 4 5

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The “Growth Levers” present a massive potential opportunity for the Technology MNCs Source: Primary Interviews, Zinnov research and analysis; All figures are in USD and estimates for the year 2014-15 Total Opportunity Size for Technology Companies Year 2014-15 Government Investments in technology (Year 2014-15) Opportunity by Technology Areas $26 Billion

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Digitization across government functions offers a multi billion dollar opportunity for technology MNCs Source: BJP Manifesto and UIDAI portal Digital India Digitization of Agriculture and PDS data Enabling e-Governance & m-Governance National Rural Internet & Technology Mission (Telemedicine & m-Healthcare Use of IT for agriculture for real time information Digitization of all government files Increasing the penetration and usage of broadband across the country Government’s Action Plan Government’s Action Plan Opportunity for Technology MNCs 1

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Government has defined a 3-pronged strategy for an Innovation-fuelled India… Source: BJP manifesto & Zinnov Talent Study India as the Innovation Hub 1) Skill Enablement Increasing IITs and IIMs Institute of Big Data Research Revising curriculum as per industry needs for higher studies 2) Innovation accelerators Ministry of Entrepreneurship Establish an Intellectual Property Rights Regime Tax incentives for investments in R&D 3) Innovation infrastructure Autonomous technology transfer organizations Facilitating multi country and inter-disciplinary research Est. world class research centers” Government Accentuators of Innovation 3500+ Startups 400 VCs & 2500 Angel Investors USD 1.6 billion invested in 2013 Startups 3500+ MNCs 850+ R&D GICS 85+ India Service Providers MNCs 400+ Universities 770K Engg Grads USD 1.5 billion invested in 2013 Universities 300+ National Laboratories 300 R&Ds in public sector Government Matured Ecosystem Innovation-Fuelled India 2

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…which will provide a robust R&D ecosystem & diverse growth opportunities to MNCs Source: Primary Interviews; Ingersoll Rand website India as the Innovation Hub MNCs will be able to harness diverse benefits of an innovative India MNCs have been leveraging the Indian innovation ecosystem to develop products for the Indian customers Access to high quality talent Innovative ecosystem will produce high quality research outputs and researchers Innovate for India from India Proximity to customers will accelerate and improve India centric product development Emergence of Industry consortiums for joint R&D Innovative ecosystem will allow joint R&D efforts across industries for accentuated product development Cooperation with Academia for Research Industry, Academia and Government collaboration for high end research Reverse Globalization Successful Indian products can be taken to similar markets globally Access to a rich start up ecosystem Possibility of acquisition of disruptive innovations from start-ups Ingersoll Rand’s India R&D center (IRETC) developed a new refrigerated transportation solution to address the problem of large scale wastage of perishable farm produce $316 Million Cold Storage Transportation Market 2

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3 Next Gen Infrastructure Government has identified key focus areas to drive next wave of infrastructural growth backed by technology Source: Primary Interviews ,BJP Manifesto, Zinnov Research & Analysis National Optical-Fibre Network Diamond Quadrilateral project 100 smart cities National solar mission National Gas Grids High-speed digital highways Restarting stalled Infra projects Government Investment in Technology $ 11 Bn investment Technology MNCs have, so far, played a crucial role in the establishment of next gen infrastructure

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4 Enhance Ease of Doing Business Government has planned for simpler and well defined Tax policies to aid businesses Source: World Bank – Doing Business report series, BJP manifesto Expected introduction of Goods & Services Tax (GST) and Direct Tax Code (DTC) BJP has committed to bring on board all states for implementing the GST GST would simplify & often lower taxes, broaden collection and spark spending DTC reforms will remove complexities and bring stability to the economy by increasing investments, creating jobs and boosting exports Easier tax policies for MNCs Review of the retrospective tax laws introduced in 2012-13 Higher incentivisation of R&D investments, geared towards indigenization of technology and innovation Expected increase in foreign direct investment limits FDI will be allowed in sectors wherever needed for job and asset creation, infrastructure and acquisition of niche technology and specialized expertise Increase of FDI limit in multiple sectors including railways, construction; with 49% limit in Defense Ease of Doing Business World Bank’s Ease of Doing Business Survey Ease of Starting a Business The new government will embark on rationalization and simplification of the tax regime to make it non-adversarial and conducive to investment, enterprise and growth

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India is already home to the most prestigious manufacturing companies globally Source: World Bank – Doing Business report series, BJP manifesto 5 Revive Manufacturing World’s 3rd largest Motorcycle manufacturer One of the largest Aluminium Rolling companies Biggest producer of Primary Aluminium in Asia World’s largest producer of polyester yarn and fibre World’s 5th largest Wind Turbine manufacturer World’s largest Motorcycle manufacturer Largest Oracle Siebel CRM Implementation in India World’s 2nd largest producer of Viscose Rayon Fibre

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5 Revive Manufacturing With Modi’s impetus on “Zero Defect” manufacturing, India will soon be the global hub for MFG (1/2) Source: World Bank data, BJP manifesto 2014 2020 Execution Plan FDI in Defence Sector Labor Intensive Industries Investment along the Dedicated Freight & Industrial Corridors NIMZs* outside DMIC Region Clear Tax Policy Manufacturing, Value Added ( as % of GDP) *NIMZ : National Investment and Manufacturing Zones  | DMIC : Delhi-Mumbai Industrial Corridor Modi aims at cranking up the share of manufacturing in India’s Gross Domestic Product

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Opportunity in Machinery and Engineering 5 Revive Manufacturing With Modi’s impetus on “Zero Defect” manufacturing, India will soon be the global hub for MFG (2/2) Source: Zinnov Research and Analysis Government’s push for manufacturing Increasing adoption of IT in manufacturing in India Increasing IoT relevance in manufacturing MNCs setting manufacturing base in India Growth of India based manufacturing companies Wider deployment of SCADA,MES,ERP systems across small scale factories Growing use cases of IoT in factories Deploying cloud-based services with intelligent analytics Added opportunity because of government reforms USD 3 BN

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The “5 Growth Levers” will be executed by a focus on 3S – “Skill, Scale and Speed”… Source: Zinnov Research and Analysis Skill 70% population is below 35, indicating a vast talent pool that needs to be empowered E-education for widespread skill development Setting up vocational training centers in field of IT and manufacturing Scale Speed Propelled by Technology E & M Governance will enable better outreach for the government policies Technology to connect with citizens Nation-wide Internet connectivity to enhance business outputs in every city Need to eliminate tardiness in decision making & policy implementation Need to use technology for real time information & analytics across industries such as PDS, agriculture & transport Smart Grids, E – Governance, Telemedicine IoT Cyber Security, Health Informatics, HGC HPC PDS, Agro-analytics Analytics UID, E- Files, GI-Cloud Cloud

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… and enabled by India’s robust fundamentals Source: Zinnov Talent Study, National Portal of India 1 2 3 4 Talent Availability Strong Democratic Fiber “Entrepreneurial Indian” Mindset Communication Infrastructure Talent Availability 85,000: Graduates from Top tier Engineering institutes 1.2 Million: Total engineers graduated in 2014 80 Million: Vocationally Trained labors India’s 4 Growth Pillars Strong Democratic Fiber Strong parliamentary democracy Well defined electoral processes Diversified representation in Lok Sabha – 16% - SC, 9% - ST 33% Women representation in various government levels Communication Infrastructure >200 Mn internet users; 3rd Largest in the world 2nd largest number of telecom users (18.94 Mn users added each month) 73.32% India’s teledensity 13 Mn broadband subscribers “Entrepreneurial Indian” mindset 40+ first generation billionaire 4000+ active technology startups 150 Start up incubators 49 Million SMEs/ SMBs operating in India

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The first 100 days of the government has already demonstrated positive impact Source: Hindustan Times, TOI, ET, DNA, Mint, YourStory; 1NCAER: National Council for Applied Economic Research, 2under Jan Dhan Yojana Modi’s 100-Day Impact

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Planning Commission to pave the way for a Think-Tank GoMs/EGoMs1 scrapped for National Data Litigation Grid for quicker disposal of legal cases MyGov Portal for citizens to directly interface with the government SIT2 formed to locate estimated INR 50,000 crore in black money stashed in tax havens abroad 1Groups of Ministers (GOMs) and Empowered Groups of Ministers (EGOMs), 2Soecal Investigative Team, Jan Dhan Yojana - financial inclusion with 1.5 crore bank accounts opened on the 1st day 1st phase target of 7.5 crore accounts by Jan 2015 National Food Grid to connect deficient areas with surplus producing regions, reduce wastage and contain food inflation Broadband in 2.5 lakh villages by 2019 Wi-fi in 2.5 lakh schools, all universities 4 lakh public Internet access points Trainings in small towns/villages for jobs in IT sector Spend of INR 1 lakh crore on current schemes INR 13,000 crores for new schemes Relationship building with Asian nations such as Bhutan, Nepal and China Modi’s recent visit to Japan led to Japan investing $35 billion in India Modi setting up Special Management Team under PMO to facilitate business from Japan The stage is all set to create long term sustainable growth and reposition India on the global map 'Minimum Government, Maximum Governance‘ Empowering the Poor Digital India “Looking East”

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India’s successful Mars Orbiter Mission has showcased India’s expertise and efficiency in Space Research Impact on the Local Ecosystem

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Modi has focused on re-energizing bilateral relations through an emphasis on forging investment partnerships Japanese government’s promise of investing $35 billion (3.5 trillion yen) into infrastructure projects in India  Areas of partnership include rejuvenation of Ganga, smart cities, transport systems, skill development and next generation infrastructure Target to double Japan’s FDI and the number of Japanese companies in India within five years  Beijing committed investment of about $20 billion in India over the next five years  Setting up of two Chinese industrial parks in Maharashtra and Gujarat  China will play a role in development of high speed railways in India and the first project will focus on upgrading some of the existing railway lines and stations in India Japan China USA Five-year Trade and Economic Development Plan’ that seeks to reduce the bilateral trade imbalance and strengthen investment cooperation  USIBC (US-India Business Council) has identified investments worth $ 41 billion by its members into India in the next 3 years

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Swachh Bharat or Clean India Mission Driving a non-political movement driven by patriotism to make India clean by October 2, 2019 Interactive website that seeks to foster participatory governance and also aims to keep citizens who volunteered to support government programs engaged.  MyGov Portal for citizen’s participation in governance Make in India Campaign Campaign to put India prominently on the global manufacturing map and, in turn, facilitate the inflow of new technology and capital UIDAI based Biometric Attendance System across government office to provide a real time transparent track of government employees attendance Biometric Attendance System Modi Government has already started diverse initiatives to improve governance and develop India as the place to be

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