251012 IB Market Study India and Sri Lanka Final_with Disclaimer

7/30/2019 251012 IB Market Study India and Sri Lanka Final_with Disclaimer

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The views expressed in this paper are the views of the authors and do not necessarily reflect the views or

policies of the Asian Development Bank (ADB), or its Board of Governors, or the governments they

represent. ADB does not guarantee the accuracy of the data included in this paper and accepts no

responsibility for any consequences of their use. Terminology used may not necessarily be consistent

with ADB official terms.

INCLUSIVE BUSINESS MARKET STUDY

FOR INDIA AND SRI LANKA

FINAL REPORT

DECEMBER 05,2012


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ADB Inclusive Business Market Study for India and Sri Lanka

Final Draft Report

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List of abbreviations used

ADB Asian Development Bank

BOP Base of the pyramid

BMGF Bill & Melinda Gates Foundation

DFI Development finance institution

DFID Department for International Development

ESG Environmental, Social and Governance (criteria for investment)

FDI Foreign direct investment

FMO Netherlands Development Finance Company

GDP Gross domestic product

GDP (PPP) Gross domestic product at purchasing power parity

HDI Human development index

IB Inclusive business

IFC International Finance Corporation

IPO Initial public offering

IRR Internal rate of return

JICA Japan International Cooperation Agency

KfW Kreditanstalt fr Wiederaufbau, a German government-owned development bank

LIS Low-income statesLP Limited partner

MPI Multidimensional poverty index

NORFUND Norwegian Governments Investment Fund for Developing Countries

NSDC National Skill Development Corporation

PE Private equity

R & D Research and development

SIDA Swedish International Development Cooperation Agency

SIDBI Small Industries Development Bank of India

SME Small and medium enterprises

Swedfund Swedish Governments Investment Fund for Developing Countries

TA Technical assistance

VC Venture capital


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TABLE OF CONTENTS

Table of Contents .......................................................................................................................... 2

1. Identifying and Supporting Inclusive Businesses ..................................................................... 4

1.1. ADBs definition of inclusive business ................................................................................. 41.2. Potential strategies for scaling-up inclusive businesses...................................................... 5

1.3. About ADBs Inclusive Business Initiative............................................................................ 6

2. Findings and Recommendations ............................................................................................. 7

2.1. Background and methodology ............................................................................................ 7

2.2. Findings................................................................................................................................ 8

2.3. Recommendations............................................................................................................. 14

3. Macroeconomic assessment of India .................................................................................... 15

3.1. Overview of performance on economic and social indicators .......................................... 153.2. Key Inclusive Business Sectors and Government Initiatives ............................................. 19

3.3. Key trends shaping the economy ...................................................................................... 24

3.4. Size of the market at the base of the pyramid .................................................................. 28

3.5. Climate for enterprise and investment ............................................................................. 29

4. Macroeconomic assessment of Sri Lanka .............................................................................. 31

4.1. Overview of performance on economic and social indicators .......................................... 31

4.2. Key trends shaping the economy ...................................................................................... 35

4.3. Size of the market at the base of the pyramid .................................................................. 374.4. Climate for enterprise and investment ............................................................................. 38

5. Inclusive business mapping .................................................................................................. 39

5.1. Overview of our methodology .......................................................................................... 39

5.2. Analysis of findings ............................................................................................................ 41

5.3. Funding needs of Inclusive Businesses .............................................................................. 53

5.4. Implications for ADB .......................................................................................................... 57

6. PE markets assessment ........................................................................................................ 58

6.1. Overview of our methodology .......................................................................................... 586.2. Analysis of findings ............................................................................................................ 60

7. Donor mapping.................................................................................................................... 69

7.1. Overview of our methodology .......................................................................................... 69

7.2. Analysis of findings ............................................................................................................ 70

8. Highlights from the Inclusive Business Forum and Roundtable Discussions ............................ 74

8.1. Objectives .......................................................................................................................... 74

8.2. Participation ...................................................................................................................... 74

8.3. Highlights ........................................................................................................................... 74

9. Bibliography ........................................................................................................................ 79


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List of Figures

Figure 1: Classification of business models ............................................................................................. 4

Figure 2: Potential strategies for scaling up inclusive business activities ............................................... 5

Figure 3: Framework to organize insights collected in the study ........................................................... 7

Figure 4: Total and equity-only FDI inflows into India .......................................................................... 15

Figure 5: Gross domestic product (GDP) at PPP ................................................................................... 15

Figure 6: Historic and planned sector growth rates ............................................................................. 16

Figure 7: Contribution of sectors to GDP and labour force employment ............................................. 17

Figure 8: Percentage of India's population in 9 poorest states ............................................................ 18

Figure 9: Half of the households in India do not have access to basic sanitation facilities ................. 21

Figure 10: Projections for India's working age population ................................................................... 25

Figure 11: Distribution of urban and rural population ......................................................................... 25

Figure 12: Increase in the number of urban towns .............................................................................. 26

Figure 11: Annual household consumer expenditure in India (1987-2010) ......................................... 27

Figure 14: Market size of India's BOP ................................................................................................... 28

Figure 15: India's credit ratings by various rating agencies .................................................................. 30

Figure 16: Gross domestic product of South and Southeast Asian countries ...................................... 31

Figure 17: Weighted contribution to GDP growth rate by sectors ....................................................... 32

Figure 18: Composition of FDI inflows .................................................................................................. 33

Figure 19: Age profile of Sri Lankas population ................................................................................... 35

Figure 20: Unemployment in Sri Lanka by education level and age group .......................................... 36

Figure 21: Segmentation of market at the base of the pyramid .......................................................... 37

Figure 22: List of IBs whom we conducted in-person interviews with ................................................. 39

Figure 23: Distribution of survey respondents ..................................................................................... 40

Figure 24: Primary BOP engagement mode of survey respondents ..................................................... 41

Figure 25: Additional BOP modes of engagement ................................................................................ 42

Figure 26: Consumer model strategies ................................................................................................. 42

Figure 27: Distributor model strategies ................................................................................................ 43

Figure 28: Supplier model strategies .................................................................................................... 44

Figure 29: Employee model strategies.................................................................................................. 44

Figure 30: Benefits to company of being inclusive ............................................................................... 45

Figure 31: Benefits to the BOP of inclusive businesses ........................................................................ 46

Figure 32: Level of social impact measurement ................................................................................... 47

Figure 33: Geographical spread of IB operations ................................................................................. 48

Figure 34: Perceptions of operating in low-income states ................................................................... 49

Figure 35: Critical growth factors .......................................................................................................... 49

Figure 36: Key risk factors ..................................................................................................................... 50

Figure 37: Equity received to date ........................................................................................................ 53

Figure 38: Debt received to date .......................................................................................................... 53

Figure 39: Credit guarantees received to date ..................................................................................... 54

Figure 40: Required investment size, by sector .................................................................................... 54

Figure 41: Investment size by geography and mode of engagement ................................................... 55

Figure 42: Ideal grant-funded investments .......................................................................................... 55

Figure 43: List of fund managers interviewed ...................................................................................... 58

Figure 44: Composition of Dalberg's sample of 21 fund managers ...................................................... 59

Figure 45: Market capitalization of countries in South and Southeast Asia ......................................... 60

Figure 46: Number and volume of PE (non real estate) investments in India ...................................... 60

Figure 47: Responses to the question: "What is your general outlook for India's economy?" ............ 61

Figure 48: Sector prioritization analysis ................................................................................................ 64

Figure 49: Illustrative approaches of major investors deploying equity/debt to IBs in India............... 70Figure 50: Exposure of major investors deploying equity/debt to priority sectors in South Asia ........ 71

Figure 51: Participation at the three inclusive business events in India & Sri Lanka ............................ 74
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1.IDENTIFYING AND SUPPORTING INCLUSIVE BUSINESSES1.1.ADBS DEFINITION OF INCLUSIVE BUSINESSThe ADB defines Inclusive Businesses (IBs) as those profit making companies that bring systemic

impact in scale to the poor and vulnerable people under the $3 international poverty line (i.e. about

60% percent of developing Asias population). These Inclusive Businesses are focused on making a

reasonable profit (an IRR of 10-20%) while contributing to systemic impact on the lives of the poor.

This can occur in a number of ways specifically including the poor as suppliers, consumers,

employees, and distributors.

As described in Figure 1 below, Inclusive Businesses differ from social enterprises and corporate

social responsibility activities in their realized profit making motive/ability to offer market returns, as

well as the scale of positive externalities generated. This results in their needing larger investments

than social enterprises. Many IBs, particularly those that have attained scale in operations, delivermarket returns or above market returns on par with commercial businesses enabling them to access

a large spectrum of commercially-oriented funding sources including stock markets.

However, the number of standalone IBs in Asia that have attained that level of scale is very low.

There are very few examples of companies like Jain Irrigation Systems Limited, the worlds second

largest irrigation company in the world with a customer base of 1.2 million farmers across

developing countries, which are listed on the Bombay Stock Exchange. There are many more

enterprises that are still in the social enterprise category, the bulk of which are relatively small in

size. In India, the ADB found 150 social enterprises of which 90% had annual revenues of USD

500,000 or less1. Again, while there are a number of examples of established commercial business

houses like Unilever and Nestle expanding their businesses in ways that are inclusive2 in Asia, there

is limited understanding of the kind of external support that might help scale these initiatives or

inspire other established commercial businesses, especially those that arent multinationals.

Therefore, in addition to finding ways to help existing IBs expand, ADBs Inclusive Business initiative

must to understand how to support the growth of social enterprises into inclusive businesses and

how to promote greater inclusivity among commercial or traditional businesses.

Figure 1: Classification of business models

1India Social Enterprise Landscape Report, ADB, 2012

2

Unilever has pioneered a direct-to-home distribution model in India for which they engage over 45,000women from base-of-pyramid populations as distributors for the products, significantly enhancing their

monthly income. Nestles milk district model wherein dairy farmers are now provided with continuous

training, technology and skill development touches farmers in 30 countries globally.

Market

returns

Business

Below

market

Social

enterprise

Above

market

returns

Low HighPositive externalities 1

Inclusive

Business

1Improvement in human development indicators

Source: Dalberg analysis


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1.2.POTENTIAL STRATEGIES FOR SCALING-UP INCLUSIVE BUSINESSESInclusive business activities can be promoted by supporting and scaling-up inclusive businesses,

social enterprises and inclusive operations of corporate firms. The ADB, in its role as the anchor DFI

for Asia, is most suited to addressing gaps in terms of finances required to scale IB activities.

Dalbergs team has identified a broad set of potential strategies for ADB to follow in supportinggrowth of IB activities. These potential strategies vary by type of organization - Inclusive Businesses,

Social Enterprises and traditional businesses.

Figure 2: Potential strategies for scaling up inclusive business activities

a)

Potential strategies to support existing Inclusive Businesses Address equity requirements as many businesses may still be years away from an IPO

and/or may be operating in markets with limited private equity activity

Provide concessional debt to finance working capital requirements that tend to besizeable in businesses that have attained a certain scale

Offer technical assistance to help companies strengthen areas that are typically under-invested in, but those that generate long-term benefits such as R&D or training

b) Potential strategies to support social enterprises scale-up to become inclusive businesses Address early growth equity requirements beyond the scope of seed and social venture

capital, i.e. look to supplement the efforts of existing impact investors

Address debt requirements of equity investees of existing impact investors so thatequity goes further, especially where access to formal debt sources is restricted Offer technical assistance /grant support to help companies invest in areas that are

typically under-invested due to long-term, public good nature of returns

c) Potential strategies to make commercial businesses more inclusive Offer concessional debt to account for higher risk and value of social benefit created by

firms wishing to expand inclusive operations

Offer a credit guarantee facility to select sectors or sub-sectors that deliver high impact

The bank must adopt a tailored approach thats appropriate to the needs of the local businesses ineach of the geographies in which is seeks to support IBs. The main focus of this report is the

BusinessInclusive

Business

Belowmarket

Social

enterprise

Abovemarket

returns

Low HighPositive externalities 1

1 Improvement in human development indicators

Source; Dalberg analysis


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approach the ADB should adopt to grow IB activity in India and Sri Lanka with a particular focus on

whether and how a dedicated IB PE fund could be relevant and effective.

1.3.ABOUT ADBS INCLUSIVE BUSINESS INITIATIVE

First approved in 2008 and refined in 2010, ADB engaged in an initiative to stimulate IB in Asia and

the Pacific. An initial technical assistance (TA) project aimed to develop inclusive business ventures

in 6 (later broadened to 10) target Asian countries (Bangladesh, India, Indonesia, Pakistan, the

Philippines and Viet Nam; later to include Cambodia, Lao PDR, Sri Lanka, and Thailand) and prepare

them for project financing through the development of national/sub-regional private equity funds.

The project is co-implemented, and leveraged where appropriate, with the Netherlands'

Development Organization SNV and the networks and assets of the World Business Council for

Sustainable Development (WBCSD). The Ford Foundation is supporting the work in Indonesia.

The initiative aims to:

perform market studies in 10 Asian countries with the results to be discussed in country

investment roundtables and regional inclusive businesses fora;

develop an impact assessment tool for possible ADB investments;

build up the first inclusive businesses investment fund for the Mekong region;

work on the creation of a technical assistance facility (2013-2016) together with other donors

who support inclusive business activities in Asia.

promote further knowledge exchange with development partners, including IDB, World Business

Council for Sustainable development, SIDA, DFID, Ford Foundation, KfW, and developmentinstitutions in Japan, among others.


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2.FINDINGS AND RECOMMENDATIONS2.1.BACKGROUND AND METHODOLOGYIn May 2012, the ADB commissioned Dalberg Global Development Advisors to undertake a study on

the Inclusive Business3 Market in India and Sri Lanka as part of a larger project titled Promoting

Inclusive Growth through Business Development at the Base of the Pyramid.

The objective of the market study was to assess the feasibility of setting up an inclusive business

(IB) private equity fund in India and Sri Lanka. Dalbergs analysis focused on answering the

following key questions:

(1) Relevance. Is PE funding relevant for the growth of IBs in India and Sri Lanka?(2) Strategy.What should ADBs investment strategy be?(3) Operationalisation.How should ADBs fund be operationalised?

These key areas of analysis - relevance, strategy and operationalisation were then broken down

into sub-questions as described in the table below:

Figure 3: Framework to organize insights collected in the study

Dalbergs approach had four distinct parts:

A. Assessment of macroeconomic and microeconomic conditions in India and Sri LankaB. Mapping of inclusive businesses operating in India and Sri Lanka through an online survey of

130 businesses, and interviews with 20 potential investees for ADB

C. Assessment of strength of capital markets in both countries through interviews with 21 fundmanagers with exposure to inclusive businesses

D. Mapping of potential co-investors (donors) in ADBs fund through interviews with 11agencies including family foundations, banks, DFI-funded investors and bilateral aid agencies

3 As defined by ADB, the Base of the Pyramid (BOP) is defined as individuals earning $3-$4 per day, per capita,

or less. Inclusive businesses are enterprises that engage the BOP in their core business operations as either:

consumers, distributors, suppliers or employees

Key questions addressed in our study

Relevance

a. Are macroeconomic conditions conducive for IB growth?

b. Are macroeconomic and business conditions favorable for VC/PE investment?

c. Is there demand from inclusive businesses to seek out VC/PE investment?

Strategy

a. What size of enterprise and investment should the fund target?

b. Which sectors should the fund prioritize?

c. Should geography be a factor, and if so, where should the fund focus?

d. Which financial instruments should the fund deploy?

e. Should mode of engagement be an investment criterion?

f. Which company-specific parameters should influence investment decisions?

Operationalisation

a. How should ADB engage existing PE funds investing in IBs?

b. Who should ADB target to raise funds from?

c. What are some other key considerations to set the IB fund up for success?


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The detailed methodology adopted within each of these work streams is described in the relevant

sections of the report.

2.2.FINDINGS

This section presents our findings in detail, organized by the three broad questions outlined at the

start of this chapter: Relevance, Strategy, and Operationalisation.

RELEVANCE

Private equity funding is relevant for the growth of small and medium IBs in both India and Sri

Lanka, however diverse conditions warrant a differentiated approach to investment in both

countries.

In India the need for equity is being met to some extent by the existing investment community

including impact investors, whereas in Sri Lanka the nascent venture capital and private equity

market implies a scarcity of equity and the need for intervention. Debt requirement for growth stage

businesses in both countries is very large and not being addressed due to the stringent collateral

requirements of banks in India and the challenges of accessing debt at reasonable terms in Sri Lanka.

In order to assess relevance of an ADB intervention to support Inclusive Businesses in India and Sri

Lanka, Dalbergs team looked at both demand and supply factors. On the demand-side, we

examined whether macroeconomic conditions support the growth of IBs and whether IBs look to PE

firms to support their growth. On the supply-side, we looked at whether macroeconomic conditions

and capital markets support PE investment.

In India, the growth of private business is supported by the countrys positive long -term economic

prospects driven by favourable demographics and consumption growth. The segment of the private

sector expected to grow the fastest is the collection of approximately 12 million small and medium

enterprises (SMEs) that employ over 30 million people. Within this large set, there are thousands of

inclusive businesses that engage members of Indias vast BOP population (>1 billion) and need

growth financing in the range of $1-10 million. Impact investors are particularly optimistic about the

growth of enterprises that provide access to basic services like energy, water, education and health

as Indias massive BOP population suffers deprivation across multiple development parameters4. On

whether IBs are turning to PE funds for support, we found that among the SMEs that qualify as

inclusive businesses, at least 75-100 business are receiving equity support from designated impact

investors5

in India. This figure does not include those whose equity needs are being met by purecommercial funds.

Most of the IBs we spoke with, expressed a greater need for support in securing debt to meet their

working capital requirements. The larger need for debt is supported by a recent IFC-sponsored

publication that found that the addressable gap in debt financing for the Micro, Small and Medium

Enterprise sector in India stood at $58 billion while the gap for equity stood at $38 billion6. The same

study found that it is the collateral requirements of commercial banks, which account for 80% of

existing lending to the MSME sector, that are the key barrier to debt. Almost all banks insist on

4Indias 2011 HDI rank was 134th of187 countries and MPI for the same year stood at 0.283 putting it at 76

thof

209 countries in 20115

There are over 15 impact investors in India with more than $750 million in committed capital6

Micro, Small and Medium Enterprise Finance Market in India, International Finance Corporation, 2012


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immovable collateral to hedge against risk of default. The study found that the typical collateral to

credit ratio is estimated between 125% and 170%. Even though a credit guarantee facility has been

instituted to support collateral-free debt up to INR 10 million ($ 0.2 million) by institutions like the

Small Industries Development Bank of India (SIDBI), this facility remains underutilized at less than 5%

of the overall debt to the sector. While collateral-free debt is growing gradually, collateralized debt

continues to account for 95%-98% of MSME credit.

On the equity front, while there are at least 15-20 dedicated impact investors investing in IBs in

India, with more than $750 million in committed capital, there is definitely scope to deploy more

funds. For the VC/PE community (supply-side), Indias most attractive features are the size of its

stock market, IPO issuing activity and expected economic growth. PE market statistics show that the

number of deals is increasing, indicative of more opportunities for PE investment. While an unclear

regulatory environment and inadequate infrastructure do pose challenges to doing business in the

country, we feel that these will dissipate over a 10-year period. Thus, the conditions are suitable for

making equity investments in IBs in India.

In Sri Lanka, conditions warrant a different, more measured approach. Sri Lankas economy has

grown at more than 8% since 2009, when its 26-year long civil war ended. The government hasinitiated a number of measures to stimulate the growth of businesses in sectors like tourism where

the target is to attract 1.5 million tourists by 2016 from 850,000 in 2011. The results of these efforts

are beginning to show from 2011 to 2012 the country jumped nine places in the Doing Business

Rankings and is ranked 89th of 183 countries, which is second best (behind Maldives) in the South

Asia region.

Fund managers (there are two active PE funds at present bringing in foreign investments) expect

investment opportunities to emerge in the SME sector, especially in services and manufacturing

companies catering to the needs of larger firms in inherently inclusive sectors like tourism, agri-

business and renewable energy. These businesses are expected to engage hundreds of BOP

members as employees and suppliers addressing Sri Lankas problems of a high youthunemployment rate (20%). Consumer-oriented IBs are less relevant in Sri Lanka due to the relatively

small BOP population (


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STRATEGY

Our findings in response to the question of what the funds strategy should be are divided into six

parts:

a) Instruments and returns expectationb) Target size of IBs investment requirementc) Sector focusd) Geographic focuse) Mode of engagementf) Other criteria for investment

a)Instruments and returns expectationsADB should observe financial discipline across all instruments that it deploys; reasonable net

financial return expectations provide an opportunity to service the large need for non-equity

instruments.

In our assessment, ADBs expectation of net financial returns in the range of 10-12% can be met by

observing discipline across the instruments deployed by the fund. This implies that expected returns

on equity and debt should be no less than market rate (typically in excess of 20% for equity and 14%

for debt, gross).

A strategy that is focused solely on equity will not address the large underserved need for debt for

working capital, which is currently a critical barrier to growth of inclusive businesses, largely for want

of collateral/security. ADBs reasonable overall returns expectations and impact-orientation provide

an important opportunity to address this issue by focusing on increasing access to debt for IBs. This

could be achieved by setting-up a debt financing facility where loans are provided to investees of

existing impact investors. An additional intervention to increase debt could be a credit guarantee

scheme, targeted at IBs that are keen to access debt from the commercial banking sector.

Interventions on the debt side may be considered timely as a number of impact-oriented PE funds

are currently contemplating launching Non-Banking Finance Companies to provide debt to

businesses. ADB could consider collaborating with a few SME, LIS and IB-focused PE funds to extend

debt to their investee companies.

A technical assistance (TA) or grant facility is another important mechanism to supporting capacity-

building in IBs. Pre-investment support could be offered through collaborating with existing

incubators in areas such as legal and IP support, accounting, MIS, etc. Post-investment support could

target areas such as training and awareness generation that also result in the creation of public

goods. In Sri Lanka, an ADB TA facility could look at supporting capital market development and

reforming the tea estates sector.

b)Target size ofIBsinvestment requirementIn terms of equity, the gap in the market is between $2-10 million; debt financing to meet working

capital requirements is a large need across a wide range of asset-light businesses and requires

further analysis on the size of debt offerings that should be priority

Stakeholders across various categories IBs, fund managers and donors have echoed the view that

ADBs fund should focus on supporting the growth of small and medium-scale IBs that roughly

correspond to the Indian governments small and medium industry classification, i.e. firms with less

than $2 million invested in plant and machinery. The largest unmet need in these firms is the needfor debt for working capital. These firms have limited access to external sources of debt finance as


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banks practice collateral-based lending and a large number of these firms are unable to comply with

these requirements.

Larger firms, on the other hand, have several alternate financing options, including commercial PE

(there are over 300 PE funds in India, majority of whom invest upwards of $10 million per deal);

commercial bank loans, corporate debt and the stock market.

In equity, very few equity investors provide support in the $1-10 million range required for early

growth financing. While USD $1-10 million is seen as a relevant range to support inclusive

businesses, investors expect a higher proportion of deals to be below $5 million given the nascent

stage of development of most IBs in India and Sri Lanka today. This, along with the focus on low-

income states and impact investments, would have implications on the selection of fund managers

that ADB would collaborate with to make available its debt financing facility.

c) Sector focusADB should adopt a sector agnostic approach, but prioritize sectors that are currently presenting

strong opportunities for social impact, such as rural livelihood (agri-businesses, tourism,

handicrafts), education, healthcare, water, sanitation and energy.

Though the overall market for PE deals in India is substantial (460 deals in 2011), very few sectors,

barring large infrastructure, real estate, finance and telecom, see sufficient annual deal flow to

warrant exclusive focus. Highly inclusive sectors like agriculture saw fewer than 4 deals per year

between 2005 and 20107. The relative lack of depth in any specific sector has resulted in very few

sector-specific PE funds - over 80% of the 300+ PE funds active in India today are sector-agnostic.

Given the newness of the asset class in Sri Lanka, adopting a sector-agnostic approach is perceived

by many as the only feasible approach.

Acknowledging the constraints imposed by the stage of PE market development, we recommend

that ADB work with funds that are sector-agnostic in their approach with a light focus on sectors that

deliver high financial and social returns, in addition to being relatively asset-light and free of risks

such as over-regulation and ESG concerns. Based on Dalbergs analysis of these factors and risks,

inclusive businesses that impact rural livelihoods like agri-businesses, handicrafts, tourism etc. and

those in education, healthcare, water, sanitation, and energy appear to be the most attractive.

d)Geographic focusADB should largely adopt a geography-agnostic approach, but may consider channelling part of itsdebt financing facility through existing low-income states (LIS) focused funds.

Low deal flow is a key reason cited by many impact-oriented investors as the key reason for

maintaining a pan-India investment approach instead of focusing exclusively on Indias low -income

states in the north and east. Indias high and growing incidence o f urban poverty (298 million BOP

live in urban areas that typically fall in high-income states) and the pan-India growth plans of

majority (more than 75%) of IBs that responded to our survey, are additional arguments in favour of

a geography-agnostic approach in planning for its debt financing facility. There are, at present, only

two funds in India which invest exclusively in low-income states. Both were launched in 2012 with

support from DFIs and DFI-funded investors like DFID, CDC and IFC and their performance is yet to

be assessed.

7Grant Thornton India PE Report 2011


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In Sri Lanka too, investors are wary of exclusively focusing on post-conflict provinces in the north &

north-east and under-developed eastern and southern provinces. The higher operational costs, in

terms of personnel and time to source deals from these regions, was also cited as a disincentive.

While uncertainty concerning deal quality and deal flow can be mitigated with an agnostic approach,

the argument still remains that under-developed regions deserve special attention. We recommend

that ADB collaborate with a few existing low-income states-focused SME funds to extend its debt

facility to IBs operating in low-income states.

e)Mode of engagement with the BOPThe ADB should remain open to supporting businesses that engage the BOP in a variety of ways

Mode of engaging the BOP refers to the way in which businesses interface with the poor as

consumers, distributors, employees or suppliers. The analysis reveals that successful IBs tend to

utilize more than one mode of engagement, sometimes even three or four. In the Indian context, all

modes of engagement are relevant and have high potential for social impact and financial returns.

The relatively small size of the BOP in Sri Lanka and high level of human development reduce the

relevance of pursuing consumer-oriented models in Sri Lanka. Overall, our recommendation is that

the ADB should support innovative businesses that engage the BOP in a variety of ways.

f)Other criteria for investmentThe ADB should focus on businesses that are asset-light, service-oriented and are deploying

technology to facilitate growth.

Across the board, fund managers have said they prefer to make equity investments in businesses

that are asset light, service oriented and enabled by technology.

Capital intensive sectors such as microfinance and housing are not favoured by investors with

limited funds. Service orientation, i.e. the addition of a layer of service on top of a product is also

seen to play a big role in the success of inclusive businesses many of which are selling novel

products, such as solar lanterns, milk chillers, phone-based medical counselling, etc. to first-time

buyers.

In the Indian context, technologies like smart cards and mobile-based payments and information

systems are helping to drive scale especially for models that require extensive rural reach. Company

innovation and access to technology was cited as the top two critical factors for growth by majorityof inclusive businesses surveyed as part of this study.

OPERATIONALIZATION

ADB should collaborate with a few, existing impact-focused funds managed by experienced fund

managers.

India has several funds targeting IBs, many of which have fund managers with deep experience in

investing for both impact and financial returns. Feedback from fund managers suggests that they

would consider collaborating with the ADB where ADB provides debt to the funds investee

companies.


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This feedback was corroborated by feedback from other donors and investors, majority of whom

have taken a fund-of-funds approach. CDC and IFC, two of the largest DFI-supported PE investors,

have only recently invested in impact-oriented SME funds8 where managers are still in the process of

fund raising. Considering the large unaddressed need for debt, a number of PE funds are considering

setting-up of Non-Banking Financing Companies to provide debt to companies to meet their working

capital needs. These funds are an attractive option for ADB to collaborate with as their managershave completed the due diligence process, have local networks and experience, critical elements for

a debt financing facility.

We recommend, therefore, that ADB support the scale-up IBs in India by setting-up a debt financing

facility and route its debt through a few established funds that are impact focused. These may be a

mix of funds that are focused on SMEs and/or LIS. The funds would independently select the

companies they choose to make an equity investment in. The ADB could, through a separate debt

facility, offer debt to select investees that fall under ADBs classification of inclusive business. We

believe this approach could help ADB achieve the desired outcome of supporting the scaling-up of

IBs and serving an unmet need, without the costs and risks associated with having to identify offer

and monitor debt to companies entirely independently.

In Sri Lanka, in addition to setting-up a debt facility, the ADB could make equity investments into IBs

by partnering with the existing PE funds. Deal sourcing in Sri Lanka is largely non-intermediated and

most under-the-radar opportunities can be accessed only by experienced fund managers. This would

place ADB in a unique position in Sri Lanka in both, the IB debt financing and equity investing space.

Potential Fund Manager Partners for ADB

Our recommendation to the ADB would be to consider fund managers to partner with based on 5

criteria 1) the stage in which they invest into companies; 2) their exposure to low income states; 3)

their development mandate; 4) their experience in making $1-$10 million investments with a

preference towards $1-$5 million; and 5) their familiarity with social impact reporting metrics.

Based on our interviews with nearly 21 fund managers in India and Sri Lanka, we recommend the

following fund managers for the ADB to consider partnering with:

a) Pragati India Fund (India)b) Aavishkaar (India)c) Small Enterprises Assistance Fund (India)d) SIDBI-Venture Capital (India)e) Aureos South Asia (India & Sri Lanka)f) LR Global (Sri Lanka)

More details on the above-mentioned fund managers may be found in the annexure to this report.

8CDC and IFC have invested in Pragati, a low-income-states focused SME fund; IFC has invested in LR Global,

an SME-focused fund in Sri Lanka


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2.3.RECOMMENDATIONSIn light of these findings, Dalberg advises ADB to adopt a three-pronged strategy to support the

development of inclusive business in India and Sri Lanka.:

I.

First, given the larger, unaddressed need for collateral-free debt financing, ADB should set up adebt-financing facility to support growth of existing IBs in India and Sri Lanka.

Given the diversity observed in existing IBs, the debt-financing facility should begeography agnostic, though the ADB may consider channelling part of its debt financing

facility through existing low-income states (LIS)-focused funds

ADB should adopt a sector agnostic approach, though priority may be given toaddressing needs of IBs operating in high impact sectors such as rural livelihoods ( e.g.

agri-business, tourism, handicrafts), water, sanitation, education, healthcare and

energy

Mode of engagement with BOP should not be a major criterion for offering debt Focus should be on innovative, high-growth models that are asset-light, service oriented

and enabled by technology The financing facility should work in collaboration with a selection of existing fund

managers with experience of making investments in social enterprises and inclusive

businesses in the sub $10 million deal size category (but not necessarily including angel

investors)

In addition to offering debt to companies, the facility could also provide creditguarantees for inclusive businesses in India & Si Lanka that have challenges providing

collateral acceptable to the banking system. Defining the exact size, rules and

distribution was not part of the scope of this study and needs to be further explored.

II.

Second, ADB should establish a Technical Assistance facility to support pre-investment andpost-investment capacity building in IBs.

Pre-investment support could be provided through existing incubation centres thatprovide support in areas such as legal, IP support, accounting, MIS, etc.

Post-investment support could be targeted at areas such as training and awarenessgeneration, that also result in the creation of public goods

In Sri Lanka, the ADB TA facility could support capital market development andreforming the tea estates sector

III. Third, in Sri Lanka, the ADB should consider offering equity to inclusive businesses eitherdirectly or through an existing fund with a mandate to support inclusive business.

We also recommend further analysis to understand the role ADB can play in offering debt to help

inclusive businesses in India and Sri Lanka achieve scale.


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3.MACROECONOMIC ASSESSMENT OF INDIAA number of secondary data sources were used to conduct an assessment of macroeconomic

conditions in India. These sources include government census reports, economic publications andsurveys, data published by international organizations such as the ADB, UN, World Bank and CIA, and

other key BOP-focused reports including TheNext 4 Billion.

3.1.OVERVIEW OF PERFORMANCE ON ECONOMIC AND SOCIAL INDICATORSPost-liberalization in 1991, Indias growth has been led by strong FDI inflows across sectors

pointing to multiple areas of opportunity; gross fixed capital formation remains high at 35% of

GDP, indicating strong prospects for future growth.

The impact of the economic reforms of 1991 and the resulting attractiveness of the Indian economyas an investment destination can be gauged by the level of

foreign direct investment (FDI) that India has attracted. In

1991, FDI inflows amounted to $73.5 million and by 2010;

this figure had increased to $24.1 billion after reaching a

peak of $43.4 billion in 20089. India currently ranks 4th in the

number of FDI projects, behind US, China and UK, and 3 rd in

terms of FDI value, behind China and Brazil10

.

Foreign investment has been directed across various sectors,

indicating multiple areas of growth and opportunity. The

services sector,including both

financial services and non-financial services like business

process outsourcing, has received the highest FDI inflow, of

$31.97 billion over the last 12 years. Capital-intensive

services like telecommunications, housing & real estate

and construction continue to receive significant amounts of

FDI, underscoring the high growth prospects of these

industries.

Overall investment, largely gross fixed capital formation,

has grown exponentially in India since 2001, when itrepresented 23% of GDP. In 2011, this figure stood at 34%.

A good indicator of a countrys future growth prospects,

Indias gross fixed capital formation is expected to continue

to be around 35% of GDP in the near future11.

A booming services sector has led Indias growth story over the last decade, but a languishing

agriculture sector has limited the inclusiveness of this growth.

9Factsheet on Foreign Direct Investment, Department of Industrial Policy and Promotion, Ministry of

Commerce & industry, Government of India10

Ernst & Youngs 2012 Attractiveness Survey 11

IMF, World Economic Outlook, April 2012

Figure 4: Total and equity-only FDI inflows

into India

SOURCE: Department of Industrial policy and promotion

2012

40

2000

30

20

10

2008

0

2004

Equity

Total

$ billions

Figure 5: Gross domestic product (GDP) at

PPP

SOURCE: World Bank data

$ trillions

Brazil

Japan

India

China

US

2020E 2030E2010F2000F

40

60

0

20

2040E 2050E


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Over the last decade, Indias GDP has been growing at an average of around 8% per annum, making

it one of the fastest growing major economies in the world. At a total size of $1.45 trillion, the Indian

economy is the 11th largest by nominal GDP and at a total size of $4.82 trillion (PPP), the 3 rd largest

by Purchasing Power Parity (PPP) behind the US and China. Multiple forecasts predict this trend

continuing to accelerate, and by 2020 Indias GDP in PPP terms is expected to rise to $8.01 trillion12.

While Indias economy as a whole has been growingly rapidly, the key economic sectors of

agriculture, industry and services have been growing unevenly. Data from past five-year plans, 9 th

Plan (1997-2002), 10th Plan (2002-2007) and 11th Plan (2007-2012) point to the fact that the

agriculture and allied services sector, which employs over 50% of the countrys population, has

grown significantly slower (less than 3.5% annually) than the services sector (approx. 7.5% annually).

This has significantly limited the inclusiveness of Indias growth.

Figure 6: Historic and planned sector growth rates

The sections below describe the trends and issues across these key sectors:

AGRICULTURE AND ALLIED SERVICES

The agricultural sector, comprising of activities such as crop farming, horticulture, animal husbandry

and fisheries, provides livelihood to roughly half of Indias population, and is a high -impact sector inthe context of inclusive growth. Its contribution to Indias GDP, however, has reduced from 29.3% in

1990-91 to 18% in 2011-201213. In the most recent 11th plan period (2007-12), agriculture grew by

only 3.2%, as compared to the target of 4%. Furthermore, within that period, the sector stagnated at

0.1% growth for two consecutive years between 2008 and 2010.

12World Bank, PWC Report and Dalberg analysis

13CIA World Factbook, Planning Commission of India

% growth rates9th plan

(97-02)

10th plan

(02-07)

11th plan

(07-12)

12th plan

(12-17)

Low Growth

Estimate *

High Growth

Estimate*

Agriculture, Forestry and Fishing 2.5 2.3 3.2 4.0 4.2

Industry 4.3 9.4 7.4 9.6 10.9

Mining & quarrying 4.0 6.0 4.7 8.0 8.5

Manufacturing 3.3 9.3 7.7 9.8 11.5

Elect., gas & water 4.8 6.8 6.4 8.5 9.0

Construction 7.1 11.8 7.8 10.0 11.0

Services 7.9 9.3 10.0 10.0 10.0

Trade, hotels & restaurants 7.5 9.6 7.0 11.0 11.2

Transport, storage, and communication 8.9 13.8 12.5 11.0 11.2

Banking and financial services 8.0 9.9 10.7 10.0 10.5

Community, social & personal services 7.7 5.3 9.4 8.0 8.0

GDP 5.5 7.8 8.2 9.0 9.5

* Low growth target - 9% target ; high growth target -9.5%

Note: Classification of sub-sectors into industry & services is done according to planning commission of Indias method

SOURCE: Faster, Sustainable and More Inclusive Growth An Approach to the Twelfth Five Year Plan 2012-2017; Planning Commission-2011,

Government of India


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Under-investment in critical infrastructure, inefficient land-

use patterns and seasonal uncertainties are to be blamed

for the sectors poor performance. In the 12th 5-year plan

(2012-2017), the government plans to achieve growth

rates over 4% by focusing on non-farm activities, such as

post-harvest operations, rural supply chain management,and warehousing, which can all contribute significantly

towards the expansion of employment and income

opportunities.

INDUSTRY

Though industry has grown faster than agriculture (a 7.4%

growth rate14 during the recent plan period), growth has

still been below expectations (10-11%). Within that

period, the growth of the sector, which includes mining

and quarrying, manufacturing and energy, dropped from 12.2% in 2006-2007 to 3.9% in 2011-2012.Furthermore, its contribution to Indias GDP decreased from 28.7% to 26%15

. In addition to

contributing heavily to overall GDP growth, a growing industrial sector is essential for absorbing

surplus labour from the agricultural sector.

Growth in industry has been impeded by challenges in land acquisition and poor energy and water

infrastructure. In more recent times (2011-12), the high interest rates imposed by the central bank

to combat inflation have been blamed for the slow growth of industrial output, as measured by

Indias Index of Industrial Production.

SERVICES

The services sector in India has grown sharply over the past decade and continues to do so. Servicescomprise of financial services, information technology and information technology-enabled services

(IT and ITES), tourism and hospitality, health, education and construction. Combined contribution of

all service-oriented industries to Indias GDP has grown from 54% in 2006-07 to 59% in 2011-12. The

services sector is currently growing at a healthy 10% annually.

This growth in the service sector has been led primarily by private enterprises, aided by Indias large

pool of workers, both skilled and unskilled. The sectors activities have resulted in massive job

creation, and it has become a catalyst of urbanization and urban migration. The construction

industry alone provides direct/ indirect employment to 35 million people and is expected to employ

92 million people by 2022.

Indias limited inclusiveness of growth is reflected in its significant economic inequality and poor

performance on human development indicators.

Despite emerging as one of the worlds largest economies, Indias per capita income still places it in

the low-middle income bracket, as per World Banks definition of country lending groups. At $3,694

(PPP), Indias per-capita income places it at the 129 th place in the world; just below Iraq16.

In 2004-05, the average per capita income of Indias bottom quintile by income was $176 (INR 9,305)

but $1,997 (INR 105,845) for the top quintile, an eleven-fold difference in income levels. As per the

14 Planning Commission, 201115

Exim Bank of India report16

IMF, World Economic Outlook, April 2012

SOURCE: CIA Factbook

26%

14%

Services

Industry

Agriculture

Labour force

by sector

(2009)

488 million

Sectoral

contribution

to GDP

(2011)

$ 1.8 trillion

18%

56%

52%

34%

Figure 7: Contribution of sectors to GDP

and labour force employment


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India Human Development Survey 2010, consumption-based inequality measured by the Gini

coefficient stood at 0.38, which is considered to be moderately unequal by world standards and is

slightly below most low-middle income developing countries, where the consumption-based Gini

coefficient ranges from 0.40 to 0.50.

At 0.52, Indias income-based Gini coefficient is much higher than that commonly observed in

emerging economies, reflecting its significant levels of inequality17

. On a per person basis, therefore,

India may be considered a lower-middle income economy with huge disparities in levels of income.

Indias progress with regard to human and social development has not been as robust as its

economic growth. High GDP growth rates have not translated to a proportional reduction in poverty,

improvement in health outcomes, access to education and skill development, and an overall

improvement in quality of life. While India has the 3 rd highest GDP (PPP) in the world, it was ranked

134th out of 187 countries on the UNDP Human Development Index in 2011.

Though there is no commonly accepted measure of poverty in India, the Tendulkar Committee, the

most recent official endeavour to estimate poverty, placed the percentage of people living below the

poverty line at 29.8% of the population (355 million people) in 2009-2010, down from 37.2% in2004-2005. The same committee placed the urban poverty line at $0.54 (INR 28.65) per day and the

rural poverty line at $0.42 (INR 22.42) per day. However, the committees methodology has come

under criticism for placing the poverty line too low, and is currently under review.

In addition to income-based poverty, most Indian

citizens lack access to basic services of a reasonable

quality. There is less than 1 hospital bed per 1000

people in India while the world average is 3 beds per

1000 people. There are over 40 children per classroom

in India while the world average is just under 2418.

Taking access parameters into consideration, the

Oxford Poverty and Human Development Initiative-

developers of the Multi-Dimensional Poverty Index

estimated that in 2011, 53.7% of the population was

living below the poverty line.

There are more poor (as per MPI) in eight Indian states

than in the 26 poorest African countries combined.

421 million people in the Indian States of Bihar,

Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa,

Rajasthan, Uttar Pradesh, and West Bengal live in

multi-dimensional poverty.

17India Human Development Survey 2010

18World Bank database 2012

Figure 8: Percentage of India's population in 9

poorest states

NOTE: UP - Uttar Pradesh; RA Rajasthan; MP Madhya Pradesh; CH

Chhattisgarh; OR Orissa; JH Jharkhand; BI Bihar; AS

Assam; WB West Bengal

SOURCE: Oxford Multidimensional Poverty Index 2011 ; India Census

Data 2011

% share of total population

0.301 0.400

0.201 0.300

0.101 0.200

0.001 0.100

0.401 0.500

RA

(6%)

MP (6%)

UP

(16%) BI (8)%

OR (8%)

WB (8%)

JH (3%)

CH (2%)

AS (3%)


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3.2.KEY INCLUSIVE BUSINESS SECTORS AND GOVERNMENT INITIATIVESAgriculture

More than half the population of India is dependent on agriculture as a source of employment and

livelihood. The long-term growth in agriculture has been just around 2%, which is just above thepopulation growth rate. Agricultures declining share in the countrys economy is putting huge

pressure on food security and consequently on food prices. Given the fact that this is a hugely

important sector from an employment, food security and overall impact perspective, a lot needs to

be done to stimulate growth.

India had record food grain production of over 250 million tonnes in 2011-2012 but the saddening

irony is that there are millions in India that are either malnourished or go hungry. The Global Hunger

Index released by the International Food Policy Research Institute ranks India 66th among 88

vulnerable countries and as per the governments estimates 42% of children in India are

malnourished. Indias food grain stockpile is roughly around 75 million tonnes, which is roughly two

and a half times the stipulated maximum food buffer. However, our warehousing capacity is just 63

million tonnes. As per the governments own estimate, 6 million tonnes of food grain rotted in its

granaries due to poor storage last year. A report by the commissioner appointed by the Supreme

Court of India put the figure at 13 million tonnes. While the government debates the Food Security

Bill, 57% of the subsidized food does not reach the intended poor due to systemic leakages in the

public distribution network19. To add to the woes, tons of food grains rot every year in open fields

for want of proper storage facilities. Revamping the entire procurement, distribution, transport and

storage ecosystem is required to meaningfully address these issues.

Ensuring an increase in private investment is the governments focus for in this sector over the

next five years. Other recommendations that are yet to be implemented are liberalizing agri-

procurement, streamlining norms for private investment in agricultural supply chains and revisiting

the Minimum Support Price norms.

Key government initiatives:

18% hike in the budgetary allocation to agriculture in the 2012-2013 budget, from $3.2 billion (INR

17,123 crore) in 2011-2012 to $3.8 billion (INR 20,208 crore) in 2012-2013.

Agricultural credit was also increased by $18.8 billion (INR 1,00,000 crore) over the previous year to

$108.5 billion (INR 5,75,000 crore).

Focus areas in the 12th five-year plan:

Frame policies that trigger domestic demand recovery Ensure rapid rise in private investment Remove bottlenecks in agriculture, energy, transport, coal, power and national highway Address malnutrition

Health

The hospital and diagnostic center segment in medical care in India has attracted FDI to the tune of

$1.2 billion between 2000 and 2012, while the drugs $ pharmaceuticals and medical and surgical

appliances industries received investments worth $9.2 billion and $514 million respectively. The

19UID and PDS in India; Unique Identification Authority of India, Planning Commission, Government of India


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government has taken some progressive measures to encourage private participation in the

healthcare industry to bridge the vast demand-supply gap.

Key government initiatives20:

The government plans to increase health expenditure to 2.5% of GDP by the end of the 12th five-year plan, from the current 1.4%.

It has allowed 100% FDI for health and medical services under the automatic rule. Allocation of funds to the National Rural Health Mission was increased from $3.59 billion in

2011-2012 to $4.13 billion in 2012-2013.

Education

The education sector holds a huge promise for private sector participation. Roughly 45% of the

population is under the age of 19 years, meaning that over 500 million people are in need of

primary, secondary and higher education. The government has committed $11 billion to this sector

towards primary and secondary education in 2012-2013. However, the government is not wellpositioned to cater to the demand for quality education given restrictions on pay scales for teachers

in government-run institutes and inability to expand schooling infrastructure at the required pace.

Between 2008 and 2012, the K12 education sector (Kindergarten to 12th grade) grew 14% from a

market size of $20 billion to $34 billion, while higher education grew 12% from $6.5 billion in 2008 to

$10.3 billion in 201221. Vocational training institutes, which have a huge relevance for the BOP

segment, have a market size of approximately $4 billion, up from $1.6 billion in 2008. Overall, the

education sector has a market size of $50 billion per annum with more than 45 million students and

an investment requirement of approximately $100 billion by 2014.


In the 11th five-year plan (2007-2012) the allocation of funds towards technical and highereducation was increased nine-fold to $18.8 billion from $2.1 Billion in the 10

thfive-year plan

100% FDI in education allowed through the automatic route23 National Skill Development Corporation has approved public-private partnership projects that

are expected to train 62 million people in 10 years

The National Skill Development Fund has been allocated $ 0.19 billion for 2012-2013. The government proposes to set-up a separate Credit Guarantee Fund to improve the flow of

institutional credit for skill development

Water & Sanitation

By, Indias goal is to halve the proportion of people without sustainable access to improved water

sources by 2015. As per available government statistics India had already met this target by 2008 by

reducing the percentage of households without access to improved water sources from 32% in 1993

to 9% through a massive program of expanding bore well and hand pump construction under

20IBEF, March 2012 Update: Ministry of Commerce and CII Initiative,

http://www.ibef.org/artdispview.aspx?art_id=31258&cat_id=119&in=29; DIPP21

India Brand Equity Foundation (IBEF): Ministry of Commerce and CII initiative22

IBEF, March 2012 Update: Ministry of Commerce and CII Initiative,http://www.ibef.org/artdispview.aspx?art_id=31278&cat_id=1057&in=7623

Press release on Foreign Universities and Educational Institutions, 4 May, 2012: Press Information Bureau,

Government of India
http://www.ibef.org/artdispview.aspx?art_id=31278&cat_id=1057&in=76http://www.ibef.org/artdispview.aspx?art_id=31278&cat_id=1057&in=76


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schemes such as the Accelerated Rural Water Supply Program However, drinking water experts fear

that many habitations will slip back with the drying up and contamination of ground water, the

source for 85% of rural water supply. Supply of safe drinking water will be a major focus for the

government in the coming years as awareness of the health impacts of unsafe water spreads.

Purification of water is also an area where the private sector has a key role to play, especially in the

provision of appropriate technologies.

Figure 9: Half of the households in India do not have access to basic

sanitation facilities

On sanitation however, India is

unlikely to meet its goals. The

country needs to reduce the

percentage of households without

access to basic sanitation facilities to

38% by 2015. It is estimated to

reduce the number to about 43%, by

2015, thus missing the target by 5%24.

The NSSO report on Household

Amenities in India, 2010 indicates

that 65.2% of rural households and

11% of urban households do not have

any latrine facility at home.

In sanitation too, the private sector has as significant role to play as a partner in projects launched by

the government. Water Aid estimates that there is a shortfall of USD 34 billion for India to meet its

water and sanitation targets by 201225. According to a World Bank Report, the value of investments

in water and sanitation with private participation in India was $23.5 million in 2009 and $75.9 million

in 2008 and is expected to grow.

Key government initiatives:

Special attention to be paid in the 12th

five-year plan to private sector investment in infrastructure,

including investments in water and sanitation. Total investment in infrastructure will need to

increase from 8% of GDP in 2011-2012 to 10% of GDP in 2016-2017.

The National Water Policy of 2002 and the Planning Commissions 11th

Five-Year plan encourage

private sector participation26.

The central government has committed $94 million (INR 500 Crore) for the Bharat Rural Livelihoods

Foundation (BRLF) and is seeking another $94 million from the private sector27

.

24Millennium Development Goals India Country Report 2011: Central Statistical Organisation, Ministry of

Statistics and Programme Implementation, Government of India25

Position Paper on Water and Sanitation in India 2009: Ministry of Economic Affairs, Government of India26Trends in Private Sector Participation in the Indian Water Sector: Water and Sanitation Program, World Bank

27Report in the Economic Times, 30 May 2012: http://articles.economictimes.indiatimes.com/2012-05-

30/news/31900347_1_jairam-ramesh-sanitation-solutions

Year Urban Rural All India

1992-1993 24.0% 87.0% 70.0%

1998-1999 19.3% 81.1% 64.0%

2005-2006 16.8% 74.0% 55.3%

2007-2008 19.0% 66.0% 51.0%

2008-2009 11.3% 65.2% 49.2%

Propor on of households having no sanita on facility

SOURCE: NFHS,DLHS,NSS Report 535, Housing condi ons and ameni es in India


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Energy

The energy requirements in a rapidly growing economy like India are growing at an accelerated rate.

Access to clean and affordable energy is one of the primary requirements for everyone, especially

the poor at the base of the pyramid.

Most rural households and indeed a significant of urban poor still use kerosene for lighting andlargely free fuels like firewood or dung for cooking. These are not only harmful to their health but

also contribute to environmental degradation. Besides, the time that is wasted in collecting firewood

can be utilized for other productive activities.

The private sector is playing an active role in reaching out to this large market by providing clean

energy solutions in cooking and lighting. Solar lighting, solar cookers, biomass gassifier systems etc.

are some of the products being offered by the private sector to addressing needs of this large

market.

The World Resources Institute, per a report published in 2004-05, estimated that the opportunity in

the clean energy market in the rural BoP segment in India was $2.11 billion per year, including $ 2.04billion for decentralized renewable energy services and $70.1 million for energy products per year.

The solar lantern market for supplying basic lighting to the rural BoP alone was estimated to be

worth $18 million. The energy-efficient cook stove market was estimated to be worth roughly $24

million per year.


The Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) was devised to remedy the issue of access

to power in rural habitations, especially to households living below the poverty line.

Distribution of solar lanterns at subsidized rates

The Bachat Lamp Yojana (BLY) provides compact fluorescent lamps (CFLs) to households at the cost

of incandescent lamps. Currently, 20 million CFLs have been distributed under the BYL.

Tourism

Tourism, along with hospitality, contributes approximately $33 billion, or around 6% of the GDP. The

tourism sector in India is one of the largest service industry employment sectors in the country

providing 9% of the total employment opportunity in India. The sector is estimated to create 78 jobs

per million rupees (approx. $19,000) of investment as compared to 45 jobs per million rupees in the

manufacturing sector. The sector is also more inclusive in that it provides jobs to a wide spectrum ofjob seekers from the unskilled to the highly specialized; jobs are spread across the country; and

there is a large percentage of women employment in this sector. The Travel and Tourism

Competitiveness Report by the World Economic Forum has ranked India at the 6 th place in tourism

and hospitality. According to the World Travel and Tourism Council, India is poised to be one of the

top tourism destinations in the world till about 2018. The tourism industry in India is expected to

grow at close to 9% per annum, making it the 2nd fastest growing tourism market in the world.

Besides providing large-scale employment, the tourism industry also has indirect contribution to the

GDP providing a multiplier effect affecting several other associated sectors and industries.

According to the Department of Industrial Policy and Promotion, the tourism sector attracted FDI

worth $2.8 billion (INR 14,771 crore) between April 2000 and January 2012. Foreign tourism arrivals

28Planning Commission of India

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