FDI / India: Big reforms, bigger money?

FDI / India: Big reforms, bigger money?

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The Indian government’s recent reforms spree to kickstart a stagnant economy could open new vistas for geospatial industry in the country

“I am told there are people who do not care for maps, and I find it hard to believe.”

— Robert Louis Stevenson, The Art of Writing

Stevenson, whose masterpiece The Treasure Island opened the first secrets of maps for us, couldn”t have been more relevant today. As governments and businesses across the world take to geospatial technology to unlock the secret to many a mystery, a host of geospatial companies are excited about fresh business prospects the economic reforms in India could unfold for them. This has come after the Indian government finally bit the bullet and opened up foreign direct investment in sectors such as retail, pension and insurance, and airlines after years of contemplation and ambivalence.

“We are already in talks with a major US retailer for identifying locations and planing logistics,” says Rajesh Mathur, Vice Chairman, Esri India. Big retailers such as Tesco, Wal-Mart, Carrefour extensively use GIS for identifying locations, business analytics, building up inventory etc. “And multinational firms always bring with them the best practices. Given that, it”s obvious that we will see a lot of activity in the geospatial space,” adds Mathur.

Reaping retail shopping
India has emerged as the fifth-most favorable destination for global retailers, says A T Kearney”s Retail Development Index 2012. The USD 450-billion retail market in India is currently controlled by tiny mom-and-pop stores, with organised retail comprising only 10 per cent but expanding at 20 per cent. With increasing disposable incomes and a middle class of close to 300 million growing at 2 per cent a year, expansion of shopping centres and malls, the sector is likely to grow to about USD 900 billion by 2014, projects PwC.

So far, 100 per cent FDI was allowed only in wholesale ventures. The recent change allows 100 per cent FDI in single-brand and up to 49 per cent in multi-brand retail, subject to sourcing restrictions and a mandatory investment clause of at least 50 per cent in backend infrastructure.

To keep up, Indian retail firms must optimise businesses against new competition, while foreign players, already familiar with cutting-edge technologies, need to strategise to capture the complex Indian market. MapmyIndia Director Rohan Verma says in this fast-changing scenario, the first thing most retailers will look for “is ways to sell efficiently, which will help reduce the cost to consumers and improve earnings of the farmer and vendors”.

“So if this is a signal for a boom in retail, and the allied FMCG sector, we see a big boom coming for the geospatial sector [too].” says Verma.

A critical aspect for a retailer is location. Other than plain GIS maps, a solutions provider adds layers of demographic data — population density, incomes and consumer buying pattern. Traffic generators like the kind of market areas or shopping malls in an area, petrol pumps, ATMs, restaurants help them decide on the viability of a place. There is also information about the supply-chain management — location of vendors and their supply areas, warehouses, logistics cost from the farmers to warehouses to retail outlets — that GIS solution providers help retailers with. For logistics, they need vehicle tracking, fleet management, GPS hardware and GIS mapping.

Dr. Aniruddha Roy, Vice President, Strategic Business Group (GIS) at Navayuga Spatial Technologies, sees a huge market potential here. “Business analytics is for the mobile players when we talk about retail. Companies dealing in GIS and spatial solutions will be the ones to gain… also, Web and service-based players.” But he is not too optimistic about the growth pace. “It will still be slow, very slow for retail… most of the work has already been done,” says Roy, implying FDI proposals had been in the pipeline for some time and foreign retailers surely did not wait for the last moment to start homework. “Data is being sent and solutions are being created out there [abroad].”

Mathur, on the other hand, feels there”s enough room for geospatial companies in India to reap the benefits. “Large companies demand fast solutions. It”s a part of their workflow. They need it, so we will do it.”

Of opportunities and mixed signals
The mandatory 50 per cent investment clause in backend infrastructure is expected to boost back-end supplychain capex, says Crisil Research, which projects that FDI in retail has the potential to attract USD 2.5-3-billion investments over the next five years. A large chunk of this investment is expected in the food and grocery vertical.

Here too, geospatial players smell new vistas. A large number of multi-brand retail chains mean FMCG companies need to put businesses on the smart track. “Essentially, FMCG sales are driven through retailers — large and small,” says Verma. “FMCGs would have to supply to a large number of outlets, and that”s where we can provide distribution logistics and sales and marketing solutions.”

Already, Indian businesses in retail and FMCG are investing in geospatial technology and solutions as they have realised its potential to optimise businesses. Verma says his business has seen significant growth in the last two to three years. On FDI, however, geospatial players are cautious about the “mixed signals” and await foreign players to firm up their India plans before counting chickens. “The government wants to relax it, the states have the option to adopt it, and the Opposition is totally against it. So, isn”t it too early to say whether the signal is strongly towards FDI in retail?” asks Verma. “There has been no announcement so far as foreign retailers are still in talks. Only when the signals are clear can we talk,” says the official of a geospatial company requesting anonymity.

Insurance a risky bet
The geospatial sector is more guarded over the reforms in insurance. The USD 41-billion insurance industry in India is full of potential but hit by regulatory hurdles, a sharp dip in GDP growth and uncertain market conditions. Even though current norms allow FDI up to 26 per cent, several foreign players have quit India. The hike in FDI cap is subject to parliamentary nod, not an easy task given that the ruling coalition is in a minority.

It is in this chaos geospatial players are looking for opportunity. “With our enablement, the insurance industry will become more organised and scientific, in terms of reaching out to consumers at the front end and risk and resource management at the backend,” says Verma. And he may not be wrong given that the market is still at a nascent stage of evolution. The ratio of life insurance premium to GDP in India is about 4 per cent, much lower than the developed market levels of 6 to 9 per cent. In urban areas, penetration is only about 65 per cent while rural penetration in the banked segment is 40 per cent and marginal in unbanked segments. E&Y lists diverse distribution strategies, focus on financial inclusion and consumer needs and preferences as the most crucial areas for insurance companies. This is where the geospatial industry can step in. Customised GIS and demographic data for consumer indexing and risk assessment by aggregating a variety of geospatial data can address these issues.

Getting them off the ground
The debt-ridden domestic airlines industry is a different ball game. Much of what it has to do with geospatial technology is government-controlled in India, with little space in fleet management and route planning for airlines, and airport management for private operators.

Foreign airlines can now pick up to 49 per cent stake in Indian carriers, a move that is expected to inject muchneeded cash flow into the aviation sector. Though global carriers are non-committal, experts say those with deep pockets will eventually enter India. Even amid this gloom, the Centre of Asia Pacific Aviation has projected 8 to 10 per cent traffic growth for 2012-13 for the India market. More the merrier for the geospatial sector, which thinks the aviation story is promising in the medium to long term. It is hoping that fresh investments in aviation technology will improve flight operations, ground handling and safety standards. Besides high taxes and capital cost, the aviation sector is plagued by high airport charges, congestion at airports and lack of airport infrastructure at smaller cities, issues that can be dealt with GIS and GPS solutions.

The geospatial industry is betting that with the rise in the number of aircraft, the number and size of airports will also go up. “Airlines and airports are aligned, just like FMCG and retail. They need similar yet different solutions,” says Verma. Airports require slightly different solutions, like 3D indoor mapping, fleet, vehicle and asset monitoring. A return-on-investment study at the Los Angeles International Airport demonstrates that after an initial investment in establishing a GIS, there was an annual return of over 400 per cent. There is also, as Mathur says, scope in route planning, new hubs and “spokeand- wheel kind of an architecture”.

The silver lining
“When big companies need quick solutions, they will pump in big money,” says Mathur. Indeed, big money could also lead to more innovation, fresh products and solutions that the Indian geospatial industry is yet to try its hands on but claims it is capable of. Geospatial is an enabling industry that helps businesses become more productive and costeffective with seamless processes. The more other businesses grow, there will be a follow-on effect onto the B2B side of geospatial industry. But for now, it’s a chicken-andegg situation — the ‘big money’ it expects will come only if the reforms translate to tangible reality.