(Kotak) +GameChanger+Perspectives+100th+edition,+July+2013 Unlocked PDF

Indialogue
a look at the
July 2013
visit
countryside
the job market
pg 50
pg 28
food and water
great
deals
a great consumption story

if jobs and growth are right
but where are the jobs?
pg 45
major
attractions
demographic dividend, literacy,

urbanization
pg 4
watch
VAT
refunds!
a political game
a fragmented Center: do
states hold the key to the next
government?
taxes, subsidies and

unintended consequences
pg 22
pg 9
GAME
CHANGER PERSPECTIVES
digital
attractions
identity, interaction, money
pg 13
ISSUES
savings!
houses and gold
pg 37
FOR REG AC CERTIFICATION, SEE LAST PAGE FOR OTHER IMPORTANT DISCLOSURES, REFER TO THE END OF THIS MATERIAL.FOR DISCLOSURES REGARDING KOTAK SECURITIES, REFER TO THE END OF THIS MATERIAL.
Akhilesh Tilotia
akhilesh.tilotia@kotak.com
Mumbai: +91-22-6634-1139
Foreword
Indias changingeconomically, financially, demographically. Take a trip through India to discover that change. The
population is morphing into a younger, more literate, urban crowd. When you travel through the states you will
hear their voice growing louder in the formation of a central government. What does that imply about the results of
the general elections next year? Watch the political game with us.
Look at India in another lightdigitally. Shopping, banking, communicating, and so much more, are going online.
You will see the Government using digital options to communicate with its people, the entrepreneur and within its
departments. That means life is getting easierpeople settle bills online, transfer money online, buy tickets and even
pay taxes online. The digital profile is making it difficult to hide from the long arms of the law.
Taxesyou can never escape them in most places on earth. In India, however, you a will discover a slight difference.
Along with taxes come subsidies for the needya large chunk of Indias rural per capita income comprises such
handouts and when such force is exerted, it leads to many outcomes that were un-envisaged or even unintended!
You realize handouts alone will not drag Indias millions out of poverty: high growth can. India needs to create
many million jobs a year by skilling its labor force. Visit the labor market with us to get the inside details
When you tour India, you cannot miss its vast rural spread. However, you will find fragmented farm holdings,
inefficient storage and transport facilities but a huge surplus of grain. As in food, so in water: you will find water in
abundance. However, Indians simply dont pay for water and hence though there is no scarcity now, there lurks a
danger that you might find a thirsty India tomorrow. Not something that a bit of reform cannot solve.
Before you wind up your tour, lets show you where India spends and saves her money. No longer does the money
go under the mattress because as more of the population pushes into the savings age bracket (30-54 years old) and
as they become more educated, the instruments of saving change. For the moment, the preferred investments are
gold and real estate and the simple pleasures of household appliances and tap water. However, as time goes by, that
seems set to change.
India is changing, come, take a look. And for your journey, you need a trusted companion someone who gives you
not just facts but insights, not just data but analysis. Look no further, this is your India handbook.
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MAJOR ATTRACTIONS
Demographic dividend, literacy, urbanization
Indian population growth slowing; literacy, life expectancy rising

Marginal improvement in a poor sex ratio
30
980
25
970
20
960
1,211
1,200
1,029
1,000
846
800
548
933
927
900
1991
(5)
1981
910
1971
920
0
2011
2001
1991
1981
1971
1961
1951
1941
1931
1921
940
934
930
1961
0
1911
941
940
930
200
1901
946
1951
279
945
1941
251
950
950
1931
252
10
439
955
1921
238
319
361
964
1901
600
400
15
683
Sex ratio (Females per 1000 males, LHS)
972
2011
Decadal growth (%, RHS)
1911
Population (mn, LHS)
1,400
Sex ratio, 1901-2011
2001
India's population growth is slowing - though absolute increase still large

India population and growth, Census year-ends 1901-2011
Source: Census of India, Kotak Institutional Equities
India's population to rise to 1.4 bn by FY2025E

Projected values of expectation of life at birth, total fertility rate and
corresponding population projections for different periods
Significant gains in overall literacy: 2 of 3 women, 3 of 4 men are literate

India's literacy rate, Census year-ends, 1951-2011
2001-05 2006-10 2011-15

Projected values of expectation of life at birth (years)
Males
63.8
65.8
67.3
Females
66.1
68.1
69.6
Total fertility rate
2.9
2.6
2.3
Projected population (mn)
1,112
1,193
1,269
2016-20
68.8
71.1
2.2
1,340
90
2021-25
69.8
72.3
2.0
1,400
Literates (LHS)
Males (LHS)
Females (LHS)
82
75
74
75
60
46
30
39
34
30
28
27
54
52
44
40
45
65
65
64
56
22
18
15
9
15
2011
2001
1991
1981
1971
1961
1951

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Demographic dividend will keep dependency ratios low

88% of the Indian population will be less than 60 years old in FY2026E
India set to see a demographic dividend
The Indian population: age distribution (%) and analysis
2006
Age group
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75-79
80+
Total
Persons
10.4
10.7
11.0
10.7
9.3
8.1
7.4
6.7
6.0
5.0
4.1
3.1
2.5
2.0
1.5
1.1
0.4
100.0
Cumulative
10.4
21.1
32.1
42.8
52.1
60.2
67.6
74.3
80.3
85.3
89.4
92.5
95.0
97.0
98.5
99.6
100.0
Persons
7.5
7.9
8.0
8.0
8.0
8.3
8.5
8.2
7.0
6.1
5.4
4.8
4.1
3.2
2.3
1.5
1.2
100.0
2026E
Cumulative
7.5
15.4
23.4
31.4
39.4
47.7
56.2
64.4
71.4
77.5
82.9
87.7
91.8
95.0
97.3
98.8
100.0
Source: Report of the Technical group on population projections constituted by the National Commission on Population, May 2006
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Over the next 15 years, all growth in population will be urban

Number of households, population in rural and urban India
Urbanization to increase by 10 percentage points by 2025E
Estimating households and size of households in India, March fiscal year-ends, FY2011-25E
FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025
Number of households (mn)
Rural
169
170
172
174
175
177
179
181
183
184
186
188
190
192
194
Urban
81
84
88
91
95
98
102
106
110
114
118
122
126
131
135
Grand total
249
254
260
265
270
275
281
287
292
298
304
310
316
323
329
% urban
32
33
34
34
35
36
36
37
38
38
39
39
40
41
41
People per household
Rural
4.9
4.9
4.8
4.8
4.7
4.7
4.7
4.6
4.6
4.5
4.5
4.4
4.4
4.3
4.3
Urban
4.7
4.6
4.6
4.5
4.5
4.4
4.4
4.3
4.3
4.3
4.2
4.2
4.1
4.1
4.1
Number of people (mn)
Rural
833
833
833
833
833
833
833
833
833
833
833
833
832
832
832
Urban
377
389
400
412
424
436
448
460
472
485
497
510
522
535
548
Grand total
1,211
1,222
1,233
1,245
1,257
1,269
1,281
1,293
1,305
1,317
1,330
1,342
1,355
1,368
1,381
% urban
31
32
32
33
34
34
35
36
36
37
37
38
39
39
40
Source: NSSO - 68th round, Census 2010, KIE estimates and calculations
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WATCH A POLITICAL GAME

A fragmented Center: do states hold the key to the next government?
Understanding the Indian political equation

Map of India showing the Lok Sabha seats won by major parties across states
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The demographic dividend can also impact political outcomes

New voters in 2014 may outnumber the number of votes won by the INC in 2009
A meaningful increase in voter turnouts, especially women, since 2009
Voter turnouts across elections in India
Male
2013
Karnataka
2012
Uttar Pradesh
Punjab
Uttarakhand
2011
Assam
Kerala
West Bengal
Tamil Nadu
2010
Bihar
Proportion
Female Total Female - Total
2009 election turn-outs

Female Total Female - Total
Higher turnouts and new voters can meaningfully alter election dynamics
Eligible, actual and potential voters across various elections (mn)
Total - Total
72
70
70
57
59
(2)
11
59
78
64
60
79
68
59
78
66
1
1
2
42
60
44
48
62
48
(6)
(1)
(4)
11
17
18
77
75
84
78
75
75
84
79
76
75
84
78
(1)
(0)
0
0
65
69
75
57
69
71
78
61
(4)
(2)
(3)
(4)
7
3
6
17
51
54
53
52
58
(6)
(5)
Eligible voters
620
1999
New voters
Turnout
372
2004
671
52
390
2009
717
45
417
2014E
772
55
55
Voter turnout (%)

60
65
70
75
46
85 123 162
Source: Election Commission of India, KIE estimates
Source: Election Commission of India, KIE calculations
Votes and seats are not meaningfully correlated

Votes, vote share and Lok Sabha seats won by national parties across elections
Votes
National parties
Bahujan Samaj Party
Bharatiya Janata Party
Communist Party of India
Communist Party of India (Marxist)
Indian National Congress
Party A (see Note 1)
Party B (see Note 1)
Total
Total electors in the country
- of which, women (%)
Total votes polled
25,728,920
78,435,381
5,951,888
22,219,111
119,111,019
8,521,502
5,280,084
265,247,905
716,985,101
48
417,159,281
2009
Share
Seats
3.6
10.9
0.8
3.1
16.6
1.2
0.7
37.0
21
116
4
16
206
9
4
376
58.2
Votes
20,765,229
86,371,561
5,484,111
22,070,614
103,408,949
7,023,175
245,123,639
671,487,930
48
389,948,330
2004
Share
3.1
12.9
0.8
3.3
15.4
1.0
36.5
Seats
19
138
10
43
145
9
364
58.1
Votes
15,175,845
86,562,209
5,395,119
19,695,767
103,120,330
3,332,702
11,282,084
244,564,056
619,536,847
48
371,669,104
1999
Share
2.4
14.0
0.9
3.2
16.6
0.5
1.8
39.5
60.0
Seats
14
182
4
33
114
1
21
369
Votes
17,186,779
94,266,188
6,429,569
18,991,867
95,111,131
11,930,209
6,491,639
250,407,382
605,880,192
48
375,441,739
1998
Share
2.8
15.6
1.1
3.1
15.7
2.0
1.1
41.3
Seats
5
182
9
32
141
6
12
387
62.0
Notes:
(1) Party A and B respectively refer to: NCP and RJD (2009 and 2004); JD(S) and JD(U) (1999); JD and Samata Party (1998)
Source: Election Commission of India
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Understanding swing seats is half the parliament safe?

The INC may be better placed than the BJP unless there is a major swing
~225 seats are "safe seats"
Margins of victory/defeat for major parties across elections, 2004-09 (%)
INC
Winner
Runner-up
BJP
Winner
Runner-up
SP
Winner
Runner-up
BSP
Winner
Runner-up
CPI(M)
Winner
Runner-up
DMK
Winner
Runner-up
AIADMK
Winner
Runner-up
Total
Winner
Runner-up
0-3
3-6
2009
6-9
>9
Total
0-3
3-6
2004
6-9
>9
Total
46
35
48
35
28
20
84
53
206
143
21
25
17
37
27
27
81
81
146
170
29
33
28
17
20
12
39
48
116
110
36
34
27
29
21
19
54
52
138
134
3
7
4
2
6
2
11
7
24
18
9
5
8
8
9
3
11
8
37
24
11
8
4
10
3
11
3
21
21
50
4
7
8
7
4
8
3
9
19
31
3
4
2
4
3
10
9
19
17
37
5
2
2
2
7
0
30
6
44
10
1
0
2
4
3
0
13
1
19
5
0
0
0
0
0
0
16
0
16
0
2
3
6
3
0
2
2
7
10
15
0
0
0
1
0
0
0
33
0
34
95
90
94
75
63
57
161
156
413
378
75
73
62
84
68
57
195
189
400
403
Source: Election Commission of India, KIE analysis
INC has well spread out "safe" seats

Seats won from a state with over 6%
victory margin in the general elections,
2004 and 2009
2009
2004
Andhra Pradesh
18
25
Rajasthan
18
2
Uttar Pradesh
11
5
Maharashtra
8
8
Haryana
7
8
Kerala
7
NCT of Delhi
7
5
Madhya Pradesh
5
4
West Bengal
5
3
Assam
3
8
Bihar
3
3
Gujarat
3
8
Punjab
3
Uttarakhand
3
1
Orissa
2
1
Tamil Nadu
2
9
Arunachal Pradesh
1
Chandigarh
1
1
Jammu & Kashmir
1
1
Manipur
1
1
Meghalaya
1
2
Mizoram
1
Pondicherry
1
Karnataka
4
Others
9
Total
112
108
BJP's "safe" seats are more clustered

Seats won from a state with over 6%
victory margin in the general elections,
2004 and 2009
2009
2004
Bihar
9
3
Madhya Pradesh
9
13
Gujarat
8
5
Karnataka
7
6
Uttar Pradesh
7
6
Chhattisgarh
6
6
Jharkhand
4
1
Maharashtra
3
9
Rajasthan
2
16
Assam
1
Daman & Diu

1
Himachal Pradesh
1
1
West Bengal
1
Others
9
Total
59
75
Source: Election Commission of India, KIE analysis

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DIGITAL ATTRACTIONS
(1) identity, (2) interaction, (3) money
Digitization of (1) identity, (2) interaction and (3) money

A rule-based and efficient system for interaction with the Government
The digital interaction between the citizen/business and Government has improved meaningfully
A digital device in the middle makes for a rule-based system
Source: Kotak Institutional Equities
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G2B and G2C interactions have been significantly digitized

Railways, taxes, voting many basic aspects of interacting with the Government rapidly digitized
Source: An RTI query reported in the Economic Times, KIE analysis
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20
15
10
5
2013
0
2012
Average price
(Rs)
1,268
997
899
883
836
826
818
2011
172
178
133
63
35
20
Sales
(Rs mn)
3,170
6,780
17,000
38,830
60,110
80,070
94,980
2010
Growth
(%)
2009
2006
2007
2008
2009
2010
2011
2012
Tickets
(mn)
3
7
19
44
72
97
116
Online tax filers have increased 10X over the past five years
Number of online returns filed, March fiscal year-ends, 2008-13 (mn)
2008
Indian Railways sold more than 100 mn tickets sold online annually
Number of tickets booked on Indian Railways' website, March fiscal year-ends,
2006-12
Source: Income tax department, Government of India
13
13
Land record digitization is progressing in many states

Significant benefits of digitization seen
Digitized land records are more legible - and reduce the importance of the
local patwari
Land records before and after Bhoomi implementation in Karnataka
Meaningful progress in registering land records online

Details of computerization of sub-registrar offices, January 2013
Land records and registration offices

Number of Sub-registrar offices (SROs)
Computerization
Total number of SROs computerized
States/UTs in which computerization completed
States/UTs in which computerization partially completed
Documents
Number of documents registered per annum across all SROs (mn)
States/UTs in which e-stamping services available at SROs
States/UTs in which integration of land records and registration complete
States/UTs in which integration of land records and registration under progress
Source: Bhoomi project, Karnataka
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4,407
2,915
24
3
30
8
8
1
Source: Department of Land Resources, Ministry of Rural Development
14
14
The income tax department has been very active in profiling assessees
The Government is tightening the noose around errant tax-payers, GST IT will help
Profiling of an individual by the tax department now draws from various databases
Various databases in use by the Government of India in profiling its taxpayers and citizens
Director in companies?
Partner in firms?
Other matters
of interest
PAN
Lineal ascendants/
descendants?
PAN
Siblings?
PAN
Persons with a common

address?
Start from PAN or

name or mobile
Identity particulars?
PAN
Income details?
AST
Prepaid taxes?
OLTAS
Investments/
expenditure
Investments /
AIR data
Expenditure
Investments /
CIB data
Expenditure
e-TDS
STT
Source: Income tax department

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Improving productivity of subsidies through better targeting via UID

However, a lot of work remains to be done on the inclusiveness of UID with respect to gender and age
UID enrolments are over the 20 mn a month mark
Monthly enrolments with UID (mn)
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
New enrolments
22,237,808
24,738,110
8,710,681
22,881,296
15,309,051
4,766,887
4,645,493
5,930,684
5,314,420
9,863,876
11,292,663
12,573,286
19,487,381
24,794,290
13,748,256
23,910,044
21,606,953
19,101,975
3,338,250
Cumulative
103,481,199
128,219,309
136,929,990
159,811,286
175,120,337
179,887,224
184,532,717
190,463,401
195,777,821
205,641,697
216,934,360
229,507,646
248,995,027
273,789,317
287,537,573
311,447,617
333,054,570
352,156,545
Notes:
(a) The data for June is updated till Jun 5, 2013
Source: UIDAI portal, KIE calculations
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Initial thrust of DBT on 25 social schemes and LPG

43 (out of an initial 51) districts have been identified for DBT implementation, 18 for LPG; 15 districts overlap
43 out of the initial 51 districts have identified for DBT; 18 for LPG pilots
Districts where pilots are being started
Himachal Pradesh
Bilaspur
Hamirpur
Una
Mandi
Punjab
Fatehgarh Sahib
SBS Nagar
Gurdaspur
Chandigarh
Chandigarh
Haryana
Ambala
Sonipat
LPG
LPG
LPG
DBT
DBT
DBT
LPG
DBT
DBT
DBT
Rajasthan
Ajmer
Udaipur
Alwar
Tripura
Dhalai
North Tripura
South Tripura
West Tripura
Jharkhand
Ramgarh
Saraikela-Kharsawan
Hazaribagh
Ranchi
DBT
DBT
DBT
DBT
DBT
DBT
DBT
DBT
DBT
DBT
DBT
Madhya Pradesh
Harda
Hoshangabad
East Nimar
Gujarat
Valsad
Mahesana
Anand
Bhavnagar
NCT of Delhi
North East
North West
Sikkim
West District
East District
DBT
DBT
DBT
DBT
DBT
DBT
DBT
LPG
LPG
Andhra Pradesh
Hyderabad
Anantapur
Chittoor
East Godavari
Rangareddy
Maharashtra
Wardha
Nandurbar
Amravati
Mumbai Suburban
Pune
Daman & Diu
Diu
Daman
DBT
DBT
DBT
DBT
DBT
LPG
LPG
LPG
LPG
LPG
DBT
DBT
DBT
DBT
DBT
LPG
DBT
DBT
Karnataka
Tumkur
Mysore
Bangalore
Goa
North Goa
Kerala
Wayanad
Pathanamthitta
Puducherry
Puducherry
DBT
DBT
DBT
LPG
DBT
LPG
DBT
DBT
LPG
LPG
DBT
LPG
LPG
Source: Government of India
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Government wants to reach the last man, banks cannot

Various Government subsidies need to reach the poor in the villages, bank model not sustainable
India lives in its far-flung villages
Distribution of villages by population clusters
Less than 100

100-199
200-499
500-999
1,000-1,999
2,000-4,999
5,000-9,999
10,000 & above
Total
Number of villages
Number Proportion Cumulative
45,276
8
8
46,276
8
15
127,511
21
37
145,402
24
61
129,977
22
83
80,413
14
97
14,799
2
99
3,961
1
100
593,615
100
The holy grail of UID will be to channel the Rs3 tn of subsidies

Breakdown of major subsidies, March fiscal year-ends, FY2007-14E (Rs bn)
Population
Number (mn) Proportion Cumulative
2
0
0
7
1
1
44
6
7
105
14
21
183
25
46
239
32
78
98
13
91
63
9
100
742
100
Diesel
4,000
Gasoline
Kerosene
LPG
Fertilizer
Food
MG
3,000
2,000
1,000
Source: Census of India, 2001

-
A rural branch is not sustainable with current cost structures

Estimates of the cost and deposit break-even for a branch
Operating costs
Number of employees
Cost per employee (Rs mn/year)
Total employee cost (Rs mn)
Other costs (Rs mn/year)
Total operating cost (Rs mn/year)
Deposits
Expected Net Interest Margin (NIM, %)
Required deposit base (Rs mn)
Penetration
Average size of deposit (Rs '000)
Required number of depositors
Number of households covered by a rural branch
Required penetration to break even (%)
6
0.2
1.2
1.2
2.4
2007
2008
2009
2010
2011
2012
2013E
2014E
Notes:
(a) Data for NREGA for FY2013E and FY2014E is estimated as equal to FY2012.
Source: Government of India, Kotak Institutional Equities estimates
3.0
80.0
20.0
4,000
5,000
80
Source: Kotak Institutional Equities estimates

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18
Banks moving towards low-cost model, various BC models emerging

Choice of technology and outreach to drive bank penetration
Banks, especially private, have moved towards lower cost banking models
Transaction cost and proportion of transactions across banking channels
ATM+POS
Internet banking
Mobile banking
Branch or call centre transaction
Total
Average cost per transaction
Cost
FY2009
(Rs/tranx)
15
4
1
50
ICICI
FY2000
(%)
3
2
95
100
48
ICICI
FY2009
(%)
46
38
1
15
100
16
Every BC has to make two choices: which technology and what outreach?
The choices that a BC needs to make
SBI
1QFY11
(%)
8
15
0
77
100
40
Source: TV Mohandas Pai in the Economic Times, SBI, Kotak Institutional Equities estimates
Banking Correspondent model critically dependent on increasing transactions

Model showing revenues and costs of a feet-on-street for a BC Current
Number of new accounts opened per month
Revenue per new account
Account opening revenue per month
Number of transactions
Average remittance (Rs/month)
Total remittances (Rs)
Commission income @ 2% (Rs/month)
Total income (Rs/month)
Cost of feet-on-street (Rs/month)
Profit/(loss) per agent (Rs/month)
Total number of monthly transactions
Average number of transactions per day
Average cost per transaction (Rs)
Current
50
10
500
175
200
35,000
700
1,200
3,000
(1,800)
225
9
13
To break-even
100
10
1,000
500
200
100,000
2,000
3,000
3,000
600
24
5
Required increase
50
Source: Discussion with industry experts, Kotak Institutional Equities
325
375
15
(8)
Source: Discussion with industry players, Kotak Institutional Equities estimates

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19
VAT REFUNDS!
Taxes, subsidies and unintended consequences
Political compulsions of inequality will continue to drive handouts

Note the discrepancy in per capita incomes and hence the focus of the Government
India's average per capita income hides several variations
Per capita income across various segments of the economy, March fiscal year-end, 2012
Agriculture
Industry
Services
Total
Labor force (mn)

Rural
Urban
246
9
62
43
54
70
362
122
Total
255
105
124
484
Rural
51
13
11
75
Proportion (%)
Urban
Total
2
53
9
22
14
26
25
100
Rural
340
95
83
518
GDP ($bn)
Urban
12
216
1,327
1,555
Total
352
311
1,410
2,073
Per-capita income ($)

Rural
Urban
557
557
620
2,023
620
7,644
577
5,140
Per-capita income (Rs)

Rural
Urban
26,198
26,198
29,134
95,076
29,134
359,269
27,139
241,581
Source: Census, NSSO survey - 66th round, ASSOCHAM, KIE calculations
Government-mandated transfers form a large chunk of per capita income in rural India
Calculating the proportion of Government-mandated payouts to per capita income, March fiscal year-end, 2012E
Food
Fuel
Fertilizer
NREGA
MSP increase
Bharat Nirman
Total
FY2012E
(Rs bn)
650
637
650
400
450
580
3,367
Per-capita income (Rs)

Proportion
Proportion (%)
Urban
Rural
30
70
60
40
100
100
100
100
Amount (Rs bn)

Urban
Rural
195
455
382
255
650
400
450
580
577
2,790
Per-capita
Urban
Rural
650
506
1,274
283
722
444
500
644
1,924
3,100
241,581
1
26,198
12
Source: Budget documents, KIE estimates and KIE calculations

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21
An unintended outcome of capital replacing labor in farms

Income transfers especially when so strong create their own outcomes
Rural India wages have risen significantly more than the tractor cost over the last few years
Cost of labor (men, annual average, Rs/day) and tractor prices (Rs)
Well-digging
Ploughing
Sowing
Harvesting
Transplanting
Winnowing
Weeding
Average wage increase
Average tractor price (Rs)
Tractor HP (average)
Tractor price (HP adjusted)
Differential increase
2010
141
121
105
103
98
96
93
108
400,000
40
10,000
% increase
2009
21
116
17
103
16
90
18
87
18
83
19
81
16
80
18
92
9
367,470
2
39
7
9,327
11
% increase
2008 % increase
2007
9
107
31
82
13
91
25
73
14
79
22
65
16
75
9
69
13
74
8
68
14
71
7
66
14
70
8
65
13
81
16
70
11
331,021
6
313,369
1
39
3
38
9
8,520
3
8,268
4
13
Source: Wage rates in rural India, Labor Bureau, various issues; Industry estimates, KIE analysis
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22
800 mn people to be covered by the Food Security Bill

Even this watered-down version will require half the marketable grains to be intermediated by Government
Ordinance seeks to reach out to two-thirds of India, less then threefourths that NAC wanted
Population to be covered under various options (%)
Ordinance
Rural
Urban
- Priority
- General
Total
Entitlement (kgs/mth/person)
- Priority
- General
Coverage
Proportion of population
Overall coverage
Logistics cost adds between 30% and 35% to the purchase price for the Government
Various logistics costs for Food Corporation of India, March fiscal year-end FY2010 (Rs/kg)
NAC proposal
Rural
Urban
46
28
44
22
90
50
75
50
5
5
5
5
7
3
7
3
61
39
65
61
39
75
Wheat
3.1
4.2
7.3
12.8
20.1
36.4
Procurement cost
Distribution
Logistics cost
Pooled cost of grain
Economic cost of grain
Logistics cost/Economic cost(%)
Rice
4.3
4.1
8.3
18.1
26.4
31.5
Source: FCI annual reports, KIE calculations
Source: NAC draft bill, press releases, KIE estimates
Government agencies procured 63 mn tons of grains in FY2012

Procurement of wheat and rice by FCI, September market year-ends (mn tons)
Grain requirement will be about 58 mn tons in the first year

Total grain requirement under various Government schemes
Total
1,209
Wheat
Rice
60
790
50
25.0
5.5
137.4
6.4
10.5
40
30
20
652.8
5.0
39.2
10
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
0
8.0
57.7
Source: Census of India, Department of Food Distribution, Draft bill, Standing Committee report, KIE
calculations
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70
2003
Urban
466
50
233
2002
Rural
743
75
557
2001
Population (2011 census, mn)

Proportion covered (%)
Entitled population (mn)
AAY entitlements
Identified families (mn)
Members per family
Identified beneficiaries (mn)
AAY entitlement (kgs/mth/person)
AAY grain required (mn tons/year)
Non-AAY entitlements
Entitled population (mn)
Entitlement (kgs/mth)
Requirement (mn tons/year)
Buffer
For other welfare schemes and consecutive drought years
Total requirement (mn tons/year)
Source: FCI
23
23
Liquidating Indias grain inventory can be the best divestment target

India maintains a far higher inventory than required by law
Wheat stocks are sometimes more than 5X the buffer requirements
Monthly stocks of wheat with FCI and buffer norms, calendar year-ends, 2006-13 (mn tons)
2006
60
2007
2008
2009
2010
2011
2012
2013
Buffer norms
45
30
15
Dec
Nov
Oct
Sep
Aug
July
June
May
April
March
Feb
Jan
Source: FCI
Rice stocks are more than 3X the buffer requirements

Monthly stocks of rice with FCI and buffer norms, calendar year-ends, 2006-13 (mn tons)
2006
40
2007
2008
2009
2010
2011
2012
2013
Buffer norms
30
20
10
Dec
Nov
Oct
Sep
Aug
July
June
May
April
March
Feb
Jan
Source: FCI
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24
NREGA provides contestability, not sustainability to rural households

NREGA offers work in non-agriculture intensive periods of the year
NREGA is not a very meaningful source of income for its associated households
Analysis of NREGA data, March fiscal year-ends, FY2007-12
Cumulative number of household jobcards issued (mn)

Households who have demanded employment (mn)
Households provided employment (mn)
Persondays (mn)
of which, women (mn days)
Expenditure (Rs mn)
Days per household (A)
Expenditure per day (Rs)
of which labor (Rs/day) (B)
Average 'earning' of a household (A*B)
Proportion of women
2007
38
21
21
905
368
88,234
43
97
78
3,359
41
2008
65
34
34
1,437
611
158,584
42
110
88
3,741
43
2009
100
46
45
2,163
1,036
272,507
48
126
101
4,832
48
2010
113
53
53
2,836
1,364
379,098
54
134
94
5,052
48
2011
120
56
55
2,572
1,227
393,773
47
153
107
5,016
48
2012
123
50
50
2,114
1,019
375,488
42
178
124
5,271
48
Source: NREGA MIS, KIE calculations
Where is the NREGA money going?

Cumulative spend of NREGA (Rs bn)
Rural connectivity
Water conservation and water harvesting
Renovation of traditional water bodies
Land development
Drought proofing
Micro-irrigation works
Flood control and protection
Bharat Nirman - Rajeev Gandhi Sewa Kendra
Total
Completed
86.0
48.5
20.4
17.6
7.8
8.4
11.8
1.2
201.7
Ongoing
210.0
133.2
69.9
33.9
28.8
26.3
21.8
7.1
531.0
Total
296.0
181.6
90.3
51.5
36.5
34.8
33.7
8.3
732.7
Proportion (%)
40.4
24.8
12.3
7.0
5.0
4.7
4.6
1.1
100.0
Source: NREGA MIS, KIE calculations

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25
VISIT THE JOB MARKET

But where are the jobs?
A large, educated workforce prepares to enter the market

Population growth is slowing but absolute increases are still large
23 mn become eligible to join the workforce every year
The number of people by educational qualification becoming eligible for employment (mn)
Illiterate
Till V
Till IX
Till XII
Diploma
Graduation
PG
25
20
15
10
5
2025 E
2024 E
2023 E
2022 E
2021 E
2020 E
2019 E
2018 E
2017 E
2016 E
2015 E
2014 E
2013 E
2012 E
2011 E
2010 E
2009
2008
2007
Source: Census of India, Kotak Institutional Equities analysis
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27
7-9% growth critical for employment generation

India has historically created only 6.5-7.1 mn opportunities annually
India has historically created 7 mn employment opportunities every year
Growth in employment across sectors over time (mn)
Agriculture
Mining and Quarrying
Manufacturing
Electricity, water, etc.
Construction
Trade, hotel, and restaurant
Transport, storage, and communication
Finance, insurance, real estate, and business services
Community, social, and personal services
Total
Source: Planning Commission XIth plan document
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1983 to 1993-94
3.3
0.1
0.7
0.0
0.5
0.9
0.3
0.1
1.1
7.1
1993-94 to 2004-05
0.8
0.0
1.3
0.0
0.9
2.1
0.7
0.4
0.2
6.5
Employment creation is dependent on growth

Expected annual job creation by industry, March fiscal year-ends (mn)
Year
2012
2017E
GDP growth
(% pa)
9
7
5
9
7
5
Employment generation (mn)

Agriculture
Industry
Services
2.0
3.8
6.3
1.3
3.2
5.4
0.5
2.6
4.6
2.1
1.3
0.5
4.0
3.1
2.2
6.8
5.3
3.9
Total
12.1
9.9
7.7
12.9
9.7
6.6
Source: NCEUS
28
28
Some recent job creation but longer term concerns remain

Dramatic fall in labor force participation of women across the board
Unemployment falls; female labor force participation falls dramatically
Employment statistics, various NSSO rounds, June year-ends, 2005, 2010 and 2012
NSS - 68th round: July 2011 to June 2012

Labor force population (ps+ss)
Worker population ratio (ps+ss)
Number unemployed (ps+ss)
Number unemployed (cds)
NSS - 61st round: July 2004 to June 2005
Difference between 68th and 66th rounds
Difference between 68th and 61st rounds
Male
Rural
Female
Person
Male
Urban
Female
Person
Male
Rural+Urban
Female
239
235
4
13
104
102
2
5
342
336
6
17
113
109
3
5
29
27
2
2
141
137
5
7
351
344
8
18
132
129
3
7
484
473
11
25
236
232
4
15
106
105
2
6
342
336
6
21
103
100
3
5
24
23
1
2
127
123
4
7
338
332
7
20
130
127
3
8
469
459
10
28
227
223
4
33
129
126
2
34
355
349
6
65
92
89
4
12
26
24
2
17
117
112
5
25
319
312
7
44
156
153
4
49
474
463
11
90
3
3
0
(2)
(3)
(3)
0
(2)
1
0
1
(4)
10
9
0
0
5
5
0
0
14
14
1
0
13
12
1
(2)
2
2
0
(2)
15
14
1
(3)
12
11
1
(20)
(25)
(25)
(1)
(29)
(12)
(13)
0
(48)
21
21
(0)
(7)
3
3
(0)
(15)
24
25
(0)
(18)
33
32
1
(26)
(24)
(24)
(1)
(42)
10
10
(0)
(66)
Person
Source: Various NSSO rounds, KIE calculations

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Unemployment rates very low as girls move out of workforce

Dramatic fall of women in labor force across the board
Where are all the girls going?
NSSO 61st, 66th and 68th round surveys, June year-ends, 2005, 2010, 2012 (%)

Labor force participation ratio (ps+ss)
Proportion unemployed (ps+ss)
Unemployment rate (ps+ss)
Unemployment rate (cds)
Workforce participation ratio (ps+ss)
Proportion unemployed (ps+ss)
NSS - 61st round: July 2004 to June 2005
Workforce participation ratio (ps+ss)
Persons unemployed (ps+ss)
Difference of 68th round and 61st round
Labor force participation ratio
Workforce participation ratio
Persons unemployed
Male
Rural
Female
Person
Male
Urban
Female
Person
Male
Rural+Urban
Female
55.3
54.3
1.0
1.7
3.3
25.3
24.8
0.5
1.7
3.5
40.6
39.9
0.7
1.7
3.4
56.3
54.6
1.7
3.0
3.8
15.5
14.7
0.8
5.2
6.7
36.7
35.5
1.2
3.4
4.4
55.6
54.4
1.2
2.1
3.5
22.5
21.9
0.6
2.4
4.2
39.5
38.6
0.9
2.2
3.7
55.6
54.7
0.9
1.6
6.4
26.5
26.1
0.4
1.6
8.0
41.4
40.8
0.7
1.6
6.8
55.9
54.3
1.6
2.8
5.1
14.6
13.8
0.8
5.7
9.1
36.2
35.0
1.2
3.4
5.8
55.7
54.6
1.1
2.0
6.1
23.3
22.8
0.5
2.3
8.2
40.0
39.2
0.8
2.0
6.6
55.5
54.6
0.9
1.6
8.0
33.3
32.7
0.6
1.8
8.7
44.6
43.9
0.7
1.7
8.2
57.0
54.9
2.2
3.8
7.5
17.8
16.6
1.2
6.9
11.6
38.2
36.5
1.7
4.5
8.3
55.9
54.7
1.2
2.2
7.8
29.4
28.7
0.8
2.6
9.2
43.0
42.0
1.0
2.3
8.2
(0.2)
(0.3)
0.1
0.1
(4.7)
(8.0)
(7.9)
(0.1)
(0.1)
(5.2)
(4.0)
(4.0)
0.0
0.0
(4.8)
(0.7)
(0.3)
(0.5)
(0.8)
(3.7)
(2.3)
(1.9)
(0.4)
(1.7)
(4.9)
(1.5)
(1.0)
(0.5)
(1.1)
(3.9)
(0.3)
(0.3)
0.0
(0.1)
(4.3)
(6.9)
(6.8)
(0.2)
(0.2)
(5.0)
(3.5)
(3.4)
(0.1)
(0.1)
(4.5)
Person
Definitions:
(1) Labor force participation ratio (LFPR): persons in the labor force (whether employed or unemployed) as a percentage of population
(2) Workforce participation (or Worker population) ratio (WFPR): employed persons in the labor force as a percentage of population
(3) Proportion unemployed (PU): unemployed persons in the labor force as a percentage of population (LFPR-WFPR)
(4) Unemployment rate: unemployed persons in the labor force as a percentage of labor force (PU/LFPR)
Source: Various NSSO rounds
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30
Out of agriculture, but into the casualization trap?

Less than half of Indians now work in agriculture; more than half are self-employed
Employment is moving away from agriculture
Employment status, various NSSO rounds, June year-ends, 2005, 2010 and 2012
(%)
NSS - 68th round; July 2011-June 2012

Agriculture (primary)
Secondary (manufacturing)
Tertiary
Total
Tertiary
Total
NSS - 61st round; July 2004-June 2005
Tertiary
Total
Tertiary
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Male
Rural
Female
Urban
Male Female
59
22
19
100
75
17
8
100
6
35
59
100
11
34
55
100
63
19
18
100
79
13
8
100
6
35
59
100
14
33
53
100
67
15
18
100
83
10
7
100
6
34
60
100
18
32
50
100
(8)
7
1
(8)
7
2
(0)
1
(1)
(7)
2
5
No meaningful change in employment status over time

Employment status, various NSSO rounds, June year-ends, 2005, 2010-12 (%)

Self employed
Casual labor
Regular wage/salaried
Total
Self employed
Casual labor
Total
Self employed
Casual labor
Total
Self employed
Casual labor
Rural
Urban
Rural+Urban
56.0
35.0
9.0
100.0
42.0
15.0
43.0
100.0
52.0
30.0
18.0
100.0
54.2
38.6
7.3
100.1
41.1
17.5
41.4
100.0
51.0
33.5
15.6
100.1
56.5
34.6
8.8
99.9
43.4
11.8
44.8
100.0
51.0
33.5
15.6
100.1
(0.5)
0.4
0.2
(1.4)
3.2
(1.8)
1.0
(3.5)
2.4
Source: Wage rates in rural India, Labor Bureau, various issues; Industry estimates, KIE analysis
31
31
Double-digit wage inflation over the past seven years

Average wages meaningfully over the minimum/NREGA wage
Double-digit wage inflation over the past seven years
Wages, various NSSO rounds, June year-ends, 2005, 2010, 2012 (%)
Male
322
Casual labor
- other than public works
149
- in public works (other than MGNREGS)
127
- in public works (MGNREGS)
112
249
Casual labor
- other than public works
102
- in public works (other than MGNREGS)
98
- in public works (MGNREGS)
91
145
Casual labor
57
Compunded annual increase (%, pa) between 68th and 61st rounds
12.1
Casual labor
14.8
Rural
Female
Person
Male
Urban
Female
Person
202
299
470
366
450
103
111
102
139
121
107
182
111
170
156
232
377
309
365
69
86
87
93
132
77
122
90
36
134
203
76
153
44
194
12.3
16.1
12.2
12.7
13.4
13.2
14.0
12.8
Source: Various NSSO rounds, Kotak Institutional Equities analysis
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India needs to, and can, create significant manufacturing-led jobs

Skill development is the key to better income distribution
Massive shift from agriculture: skill development in many industries is critical
Stock of employment across sectors, March fiscal year-ends, 2008-22E (mn)
Industry/Service
Auto and auto components
Banking, financial services and insurance
Building, construction and real estate
Chemicals and pharmaceuticals
Education and skill development
Electronics and IT hardware
Food processing
Furniture and furnishings
Gems and jewellery
IT and ITES industry
Leather
Media and entertainment
Organized retail
Textiles and spinning
Tourism
Transportation, logistics, warehousing and packaging
Unorganized sector
Others
Total in industry or services
Total labor force
Employed in industry or services (%)
Employed in agriculture (mn)
Employed in agriculture (%)
2008
13
4
37
2
5
1
9
1
3
2
3
1
0
13
4
7
36
68
209
481
43
272
57
2022E
48
9
86
4
13
4
18
5
8
8
7
4
18
30
7
25
77
170
539
654
82
114
18
Increase
35
4
49
2
9
3
9
3
5
5
5
3
17
17
4
18
41
102
330
173
39
(158)
(39)
Source: National Skill Development Council reports, KIE estimates

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33
Indian graduates may find it difficult to get jobs

The return on higher education is falling in India
Engineering and management student intakes have risen 2-3X over the
past five years
AICTE-approved technical institutions, approved and actual student intake, March
fiscal year-ends, 2008-12
2008
2009
2010
2011
2012
1,668
1,149
1,017
854
197
4,885
2,388
1,523
1,095
1,021
203
6,230
2,972
1,940
1,169
1,081
199
7,361
3,222
2,262
1,198
1,114
208
8,004
3,393
2,385
1,228
1,137
218
8,361
825,791
114,803
55,009
65,788
15,508
1,076,899
1,087,283
155,658
64,247
73,489
16,949
1,397,626
1,400,270
210,737
74,619
78,891
18,835
1,783,352
1,783,431
291,382
83,942
95,517
22,752
2,277,024
1,905,802
313,920
87,573
102,078
22,840
2,432,213
653,290
121,867
70,513
52,334
9,818
907,822
841,018
149,555
73,995
64,211
10,337
1,139,116
1,071,896
179,561
78,293
68,537
10,520
1,408,807
1,314,594
277,811
87,216
98,746
12,384
1,790,751
1,485,894
352,571
92,216
102,746
13,184
2,046,611
Seats
3.0
Source: AICTE
Mean salaries at IIM-Ahmedabad converging - BFSI no longer an

outstanding paymaster
Median salary of freshers from IIM-Ahmedabad across sectors, March fiscal yearends, 2011-12
Banking and financial services
Consulting
Consumer goods (FMCG)
Information Technology
Students
3.5
2011
1,754,417
1,378,453
1,295,275
1,263,524
Source: IPRS, IIM-Ahmedabad, KIE calculations

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1,349,912
1,514,343
1,345,759
1,377,153
% change
(23)
10
4
9
2.5
2.0
1.5
1.0
0.5
2012
2011
2010
2009
2008
Institutes (#)
Engineering
Management
Masters in Computer Applications
Pharmacy
Others
Total
Approved student intake (#)
Engineering
Management
Pharmacy
Others
Total
Actual student intake (#)
Engineering
Management
Pharmacy
Others
Total
Almost anyone who wants higher education in India can now get it
Potential candidates and number of college seats, March fiscal year-ends, 2008-12
Source: AICTE, KIE calculations
Education loan EMI can form a meaningful component of a fresher's take

home pay
Fees, other costs at IIM-Ahmedabad

Loan (assumed at 80%)
Loan rate (%)
Loan tenure (years)
Loan EMI (per month)
Average salary
Tax and other deductions (at ~30%)
Take home pay (per month)
Education loan EMI/Take-home pay (%)
1,600,000
1,280,000
11
7
21,917
1,400,000
420,000
81,667
27
Source: IIM-Ahmedabad, discussions and KIE calculations

34
34
SAVINGS!
Houses and gold abound
The households savings rate is driven by demographics

40% of India will be in the savings age in 2025E: 30-54 years old
Physical savings have outpaced financial savings for households over the past few years
Sector-wise gross domestic savings as a percentage of GDP, March fiscal year-ends, 1981-2012
Gross domestic savings
Household physical savings
Household financial savings
40
30.8
30
20
14.3
8.0
10
2011
2008
2005
2002
1999
1996
1993
1990
1987
1984
1981
Source: CEIC, Kotak Institutional Equities estimates
Increasing life expectancy makes saving for old age important

Projected life expectancy in India, March fiscal year-ends, 2010-25E
88% of Indias population will be less than 60 years old by 2025E

Indias age profile in 2025E (percentage of the population)
Males
80
100
80
Females
60
60
40
40
20
20

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7 5 -7 9
7 0 -7 4
6 5 -6 9
6 0 -6 4
5 5 -5 9
5 0 -5 4
4 5 -4 9
4 0 -4 4
3 5 -3 9
3 0 -3 4
2 5 -2 9
2 0 -2 4
1 5 -1 9
1 0 -1 4
5 -9
0 -4
0
0
1981-85
1986-90
1991-96
2001-05
2006-10
2016-20
Source: Ministry of Health and Family Welfare, Kotak Institutional Equities

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36
Net gold imports into India and the wealth effect

Even the doubling of the value of gold has been masked by gains in equity
20-30% of India's gold imports are re-exported
India's exports of and investment in gold, March fiscal year-ends, 2002-12
Total gold products export (US$ mn)

Gold content in the export (US$ mn)
Average price of gold (US$/troy ounce)
Average price of gold (US$ mn/ton)
Gold exported (tons)
Gold imported (tons)
Export/Import (%)
2002
1,169
935
278
9
105
471
22
2003
1,512
1,210
326
10
115
607
19
2004
2,666
2,133
378
12
175
767
23
2005
3,784
3,027
414
13
227
783
29
2006
3,882
3,106
477
15
202
723
28
2007
5,209
4,167
628
20
206
716
29
2008
5,562
4,450
766
25
181
698
26
2009
8,746
6,997
868
28
251
771
32
2010
2011
2012
6,132 12,886 16,517
4,906 10,308 13,214
1,024
1,295
1,647
33
42
53
149
248
250
851
970
1,078
18
26
23
Total
2,109
8,435
25
Notes:
(a) India exports gold jewelry and medallion/coins of gold. We assume 80% of the value of sale to be gold.
(b) 1 troy ounce is taken as equal to 31.1 grams
Source: GJEPC, RBI, CEIC, KIE calculations
India's investment in gold over the last decade has doubled in value
India's investment in gold and its current value, March fiscal year-ends, 2002-12 (US$ bn)
Net stay back of gold in India (tons)

Investment in stay-back gold
Current value of gold
Wealth effect
2002
367
3
19
16
2003
491
5
26
21
2004
591
7
31
24
2005
556
7
29
22
2006
521
8
28
20
2007
510
10
27
17
2008
518
13
27
15
2009
520
15
28
13
2010
702
23
37
14
2011
722
30
38
8
2012
829
44
44
Total
6,326
166
335
169
Source: KIE estimates and calculations
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Loans against gold are a better way to monetize gold in India

The dominant use of gold in India is still jewelry; investment use is becoming prominent
Bank-led schemes to garner gold have met with modest success
Collection by gold bond schemes in India (tons)
Scheme
15-year Gold Bonds
Gold Bonds
National Defence Gold Bonds
Total until 1996
Estimated gold stock in 1996
Gold monetized (%)
Year
1962
1965
1980
Interest
6.5%
7.0%
6.5%
Collection
16.3
6.1
13.7
36.1
9,016.0
0.40
Comments
Indo-China war prompted this
Included an amnesty scheme
Unlike earlier schemes, this was redeemable in gold
Notes:
(a) India implemented a scheme to restrict jewelry making at 14 carat purity from January 1963 to November 1966.
(b) India tried to auction its official gold holdings to the public to contain imports, but withdrew it within months as it was "not practical".
Source: YV Reddy's speech in 1996 to WGC
Gold is still dominantly used for jewelry

Break-up of consumer demand in India, calendar year-ends, 1990-2008 (%)
Loan financing may be a better way to monetize gold

Estimate of gold monetization, December 2012 (Rs bn)
100
Others
80
Investment
60
Jewelry
40
20
Source: Dr. R Kanan in World Gold Council report, 2011

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2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
Banks
Non-banking financial companies (NBFCs)
Co-operatives
Total
Average loan to value ratio (%)
Loan value mortgaged
Gold price (Rs/gm)
Gold mortgaged (tons)
Gold stock in 2012 (tons)
Gold monetized (%)
Rs bn
650
510
50
1,210
65
1,862
3,000
621
18,000
3.4
Source: KIE estimates and calculations

38
38
New housing dynamics as smaller families emerge

Small rental market: those who own homes in urban India possibly own multiple homes
81 mn new housing units created in the last decade
Housing stock, March fiscal year-ends, FY2001 and FY2011 (mn)
Occupied
of which,
Residential
Residential-cum-other uses
Non-residential
Vacant
Total
Number of households
FY2001
Rural
Urban
168
65
129
6
33
10
178
50
2
13
7
72
Total
233
179
8
46
17
250
192
Larger households breaking up into smaller sizes

Household size, March fiscal year-ends, FY2001 and FY2011 (%)
FY2011
Rural
Urban
207
99
160
6
41
14
221
168
76
2
21
11
110
79
Total
306
236
9
62
25
331
247
1
2
3
4
5
6-8
9+
Total
Total
3.6
8.2
11.1
19.0
18.7
28.1
11.3
100.0
2001
Rural
3.5
8.2
10.4
17.7
18.5
29.6
12.1
100.0
Urban
3.7
8.2
12.7
22.4
19.2
24.4
9.4
100.0
Total
3.7
9.7
13.6
22.7
18.8
24.9
6.6
100.0
2011
Rural
3.7
9.8
12.6
21.0
18.9
26.9
7.1
100.0
Urban
3.6
9.5
15.9
26.4
18.5
20.6
5.5
100.0
Source: Census of India
More than five out of six households in India own their homes
Ownership and renting of homes, March fiscal year-ends,1991, 2001, 2011 (%)
Nuclearization not driven by 'broken' households but fewer offspring

Number of married couples in a house, March fiscal year-ends, 2001, 2011 (%)
2011
Owned
Rented
Others
Total
1991
86.3
11.8
1.9
100.0
2001
86.7
10.5
2.8
100.0
2011
86.6
11.1
2.3
100.0
Rural
94.7
3.4
1.9
100.0
Urban
69.2
27.5
3.3
100.0
None
1
2
3
4
5+
Total
Total
11.1
70.3
13.5
3.6
1.0
0.5
100.0
2001
Rural
10.5
69.3
14.6
4.0
1.1
0.5
100.0
Urban
12.6
73.0
10.8
2.7
0.7
0.3
100.1
Total
11.6
70.2
14.1
3.2
0.7
0.2
100.0
2011
Rural
11.1
69.5
14.9
3.4
0.8
0.3
100.0
Urban
12.7
71.0
12.6
2.9
0.6
0.2
100.0
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Indian houses are much better than over the past two decades
Indians seem to want to invest in quality over quantity a trend that is expected to continue
Indians have sturdier roofs over their heads
Material of roof, March fiscal year-ends, FY1991, 2001 and 2011 (%)
Grass/thatch/bamboo/wood/mud, etc.
Tiles
GI/ Metal/ Asbestos sheets
Concrete
Others
Total
1991
31.3
36.1
8.6
10.8
13.2
100.0
2001
21.9
32.6
11.6
19.8
14.1
100.0
2011
15.0
23.8
15.9
29.0
16.3
100.0
Walls of Indian homes are stronger

Material of walls, March fiscal year-ends, 1991, 2001 and 2011 (%)
2011
Rural
Urban
20.0
4.6
28.7
13.2
15.9
15.9
18.3
51.9
17.1
14.4
100.0
100.0
Grass/thatch/bamboo, etc.
Mud/unburnt bricks
Stone
Burnt brick
Others
Total
1991
10.3
41.5
10.1
34.2
3.9
100.0
2001
10.2
32.2
9.4
43.7
4.5
100.0
2011
9.0
23.7
14.2
47.5
5.6
100.0
Most of the floors in India are paved

Material for floors, March fiscal year-ends, 1991, 2001 and 2011 (%)
Most Indian homes have one or two rooms

Number of rooms, March fiscal year-ends, FY2001 and 2011 (%)
Mud
Stone
Cement
Mosaic/floor tiles
Others
Total
1991
67.0
21.3
3.8
7.9
100.0
2001
57.1
5.8
26.5
7.3
3.3
100.0
2011
46.5
8.1
31.1
10.8
3.5
100.0
2011
Rural
62.6
6.2
24.2
3.7
3.3
100.0
Urban
12.2
12.2
45.8
25.9
3.9
100.0
No exclusive room
One room
Two rooms
Three rooms
Four rooms
Five rooms
Six rooms and above
Total
Total
3.1
38.5
30.0
14.3
7.5
2.9
3.7
100.0
2001
Rural
3.4
39.8
30.2
13.3
7.0
2.8
3.5
100.0
Urban
2.3
35.1
29.5
17.1
8.7
3.3
4.0
100.0
Total
3.9
37.1
31.7
14.5
7.5
2.6
2.7
100.0
2011
Rural
11.9
30.5
13.6
40.0
4.0
100.0
Urban
2.7
9.3
15.0
63.5
9.5
100.0
2011
Rural
4.3
39.4
32.2
12.7
6.6
2.3
2.5
100.0
Urban
3.1
32.1
30.6
18.4
9.3
3.3
3.2
100.0

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Amenities at home and asset ownership are rising dramatically

A small point on wasteful subsidies is in order, here
Tap water gains significant currency, though vast rural-urban gaps remain
Source of water, March fiscal year-ends,1991, 2001 and 2011 (%)
Tap
Hand-pump and tube-well
Well
Others
Total
1991
32.3
30.0
32.2
5.5
100.0
2001
36.7
41.2
18.2
3.9
100.0
2011
43.5
42.0
11.0
3.5
100.0
2011
Rural
30.8
51.9
13.3
4.0
100.0
Urban
70.6
20.8
6.2
2.4
100.0
India gets rapidly electrifiedkerosene loses importance in lighting up

homes
Source of lighting, March fiscal year-ends, 1991, 2001 and 2011 (%)
Electricity
Kerosene
Solar energy
Other oil
Any other source
No lighting
1991
42.4
2001
55.9
2011
67.3
31.4
0.4
0.2
0.2
0.5
Rural
55.3
Urban
92.7
Even as LPG catches on and kerosene takes a backseat, firewood is used in

half of Indian homes to cook
Fuel used for cooking, March fiscal year-ends, 2001 and 2011 (%)
Dramatic improvement in material asset ownership

Households with asset ownership, March fiscal year-ends, 2001 and 2011 (%)
Fire-wood
Crop residue
Cow dung cake
Coal, Lignite, Charcoal
Kerosene
LPG/ PNG
Electricity
Biogas
Any other
No cooking
Total
Total
52.5
10.0
9.8
2.0
6.5
17.7
0.2
0.4
0.6
0.3
100.0
2001
Rural
64.1
13.1
12.8
1.1
1.6
5.7
0.1
0.5
0.8
0.2
100.0

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22.7
2.1
2.0
4.6
19.2
47.9
0.3
0.4
0.2
0.6
100.0
Total
49.0
8.9
8.0
1.4
2.9
28.5
0.1
0.4
0.5
0.3
100.0
2011
Rural
62.5
12.3
10.9
0.8
0.7
11.5
0.1
0.4
0.6
0.2
100.0
2011
Urban
20.1
1.4
1.7
2.9
7.5
65.1
0.2
0.4
0.2
0.5
100.0
Banking
Radio/transistor
Television
Bicycle
Car/Jeep/Van
Scooter/Motorcycle/Moped
Telephone
of which, mobile
Computer/laptop
of which, with internet
Rural
54.4
17.3
33.4
46.2
2.3
14.3
54.0
51.0
5.2
0.7
2001
Urban
67.8
25.3
76.7
42.0
9.8
35.2
82.0
76.0
18.7
8.3
Rural
30.1
31.5
18.9
42.8
1.3
6.7
3.5
NA
NA
NA
Urban
49.5
44.5
64.3
46.0
5.7
24.7
23.0
NA
NA
NA
Change
Rural
Urban
24.3
18.3
(14.2)
(19.2)
14.5
12.4
3.4
(4.0)
1.0
4.1
7.6
10.5
50.5
59.0
NA
NA
NA
NA
NA
NA

41
41
Indias home loan market

Six million active accounts; ticket sizes and repayment tenures rising
Ticket-sizes of home loans are increasing
Home loans disbursed and outstanding, March fiscal year-ends, 2010-12 (Rs bn)
Under Rs0.2 mn
Rs0.2 mn - Rs0.5 mn
Rs0.5 mn - Rs1.0 mn
Rs1.0 mn - Rs2.5 mn
Over Rs2.5 mn
Total
Disbursed
53
56
118
266
246
738
2012
O/S
68
385
643
1,012
622
2,730
Scheduled Commercial Banks

2011
NPA (%)
Disbursed
O/S
11.5
58
94
4.8
113
483
3.4
135
588
1.7
202
684
1.1
243
542
2.6
752
2,391
NPA (%)
6.1
4.9
3.7
2.6
1.6
3.2
Disbursed
45
106
122
190
256
719
2010
O/S
90
440
512
550
432
2,024
NPA (%)
6.3
5.8
4.3
2.9
1.4
3.7
Source: National Housing Bank
There are more than six million home-loan borrowers even as average balances increase
Housing-loan accounts and balances, March fiscal year-ends, 2005-10
Loan
accounts
2005
2006
2007
2008
2009
2010
3,666,450
4,521,531
5,009,913
5,214,331
5,710,702
6,037,786
Loan
outstanding
(Rs bn)
1,268
1,822
2,289
2,484
2,848
3,063
Credit limit
(Rs bn)
1,450
2,092
2,697
2,918
3,388
3,766
Average loan
outstanding
(Rs/account)
345,830
402,888
456,940
476,445
498,627
507,315
Average
credit limit
(Rs/account)
395,568
462,753
538,423
559,660
593,265
623,775
Repayments calculations show a lengthening tenure of loans

Housing loans tenure calculations, March fiscal year-ends, 2011-12
(Rs bn)
Opening outstanding
Disbursements
Closing outstanding
Repayments
Average outstanding
Average tenure (years)
2012
2,391
738
2,730
399
2,560
6.4
2011
2,024
752
2,391
384
2,207
5.7
Source: National Housing Bank, KIE analysis
Source: National Housing Bank
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42
GREAT DEALS
A great consumption story if jobs and growth are right
Spending on discretionary items will increase as incomes rise

Food, housing, transport to be the biggest value creators
The big winners in the Indian consumption story
CAGR and market size of various commodities, March fiscal year-ends
Categories
Food and beverages
Alcohol and tobacco
Clothing and footwear
Housing
Household goods
Healthcare
Transport
Communications
Leisure
Education
Hotels
Miscellaneous
Total
Growth
CAGR (%)
6.0
7.7
7.3
9.6
8.8
10.2
9.1
9.4
10.4
9.2
10.1
9.2
8.0
Rank
12
10
11
4
9
2
8
5
1
6
3
7
Market size (Rs bn)

FY 2012
FY 2025
23,590
50,578
1,403
3,681
2,904
7,266
6,412
21,183
2,282
6,818
2,482
8,735
4,751
14,700
1,406
4,527
1,945
7,038
1,440
4,527
1,661
5,797
5,852
18,390
56,129
153,241
Opportunity
(Rs bn)
26,988
2,278
4,361
14,771
4,537
6,253
9,949
3,121
5,094
3,087
4,136
12,538
97,113
Source: Kotak Institutional Equities RUPEES model
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Understanding our RUPEES framework

The share of wallet spent by Real-rich households is significantly different from that of the Survivors
Defining the RUPEES framework
Classifying Indian households in various categories of MPCE, 2010-Rs
Real-rich
Upper-class
Prospering
Evolving
Emerging
Surviving
Monthly expenditure
From
To
30,000
20,000
30,000
10,000
20,000
5,000
10,000
2,500
5,000
2,500
Annual expenditure
From
To
360,000
240,000
360,000
120,000
240,000
60,000
120,000
30,000
60,000
30,000
Understanding the RUPEES wallet

Proportion of annual expenditure-wallet spent on various categories on a per
capita basis
Average
500,000
300,000
180,000
90,000
45,000
15,000
Proportion (%)
Food and beverages
Alcohol and tobacco
Housing
Household goods
Healthcare
Transport
Communications
Leisure
Education
Hotels
Miscellaneous
Total
Average income
Real-rich Upper-class Prospering Evolving Emerging Surviving

15.0
20.0
30.0
40.0
45.0
50.0
2.0
2.0
2.5
2.5
2.5
2.5
4.5
4.5
4.5
5.0
5.0
7.0
17.0
17.0
15.0
12.0
11.0
7.5
6.0
5.0
4.5
4.0
4.0
4.0
9.0
8.0
6.0
4.5
4.0
4.0
11.0
11.0
10.0
9.0
8.0
7.0
4.0
4.0
3.0
2.5
2.5
2.0
6.0
6.0
5.0
4.0
3.0
2.0
4.0
4.0
3.0
2.5
2.5
2.5
5.0
4.5
4.0
3.5
2.5
2.0
16.5
14.0
12.5
10.5
10.0
9.5
100.0
100.0
100.0
100.0
100.0
100.0
500,000
300,000
180,000
90,000
45,000
15,000
Source: KIE estimates
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Indias consumption profile has many estimates

We use international comparisons to derive the spending wallet of different classes
Our analysis has a reasonable resemblance to Indian consumption estimates
Estimates of the break-up of India's consumption basket, March fiscal year-end,
FY2011
Food and beverages

Alcohol and tobacco
Housing
Household goods
Healthcare
Transport
Communications
Leisure
Education
Hotels
Miscellaneous
Grand total
Rural
45.5
2.5
5.6
10.1
4.0
4.1
7.9
2.3
2.9
2.5
2.5
9.9
100.0
KIE analysis
Urban All-India
39.9
42.8
2.5
2.5
5.0
5.3
12.1
11.1
4.1
4.1
4.7
4.4
8.8
8.3
2.6
2.5
3.8
3.3
2.6
2.6
3.2
2.9
10.8
10.3
100.0
100.0
NSSO
Rural Urban
53.6
40.7
2.2
1.2
5.9
5.6
4.8
6.7
9.5
8.0
24.0
100.0
37.8
100.0
Euromonitor
All India
27.7
3.2
6.4
14.5
3.9
4.8
17.7
2.2
1.3
2.4
2.9
13.2
100.0
Source: Euromonitor 'World Consumer Income and Expenditure Patterns', July 2011, NSSO, KIE
estimates
Global consumption patterns help to guide Indian projections

Consumer spending across categories, 2010 (%)
Food and beverages

Alcohol and tobacco
Housing
Household goods
Healthcare
Transport
Communications
Leisure
Education
Hotels
Miscellaneous
Total
Per capita income (PPP, US$)
# of years to reach this stage
Indonesia
32.2
5.8
3.1
13.8
5.3
4.3
6.5
2.1
1.4
2.1
13.7
9.8
100.0
3,179
2
2010 - PPP basis

China
Korea
Japan
22.3
15.0
14.7
2.3
2.6
2.8
7.5
4.1
3.4
14.8
17.3
23.8
4.7
3.9
3.7
6.9
5.4
4.8
6.4
10.8
11.6
4.9
5.7
3.0
5.3
7.3
10.9
4.8
6.3
2.2
8.4
7.3
7.5
11.7
14.3
11.4
100.0
100.0
100.0
4,432
7
19,068
28
28,637
34
USA
6.8
2.1
3.5
19.1
4.2
20.3
9.7
2.3
9.3
2.4
6.2
14.1
100.0
43,539
40
Source: Euromonitor, KIE estimates and calculations
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Economic growth can create a very meaningful middle class

Top three classes will rise 3X in number; Survivors will upgrade to Emerging and Evolving
India will see a massive uptick in rich households
Distribution of Indian households by consumption expenditure, March fiscal year-ends, 2010-25E
Rural households (mn)
Real-rich
Upper-class
1.2
2.7
Prospering
1.2
2.6
4.1
5.5
7.1
8.6
10.1
11.7
13.4
15.0
19.4
19.8
21.7
Evolving
11.3
17.5
17.5
20.1
24.0
27.6
30.9
36.1
42.4
48.2
56.1
64.4
70.3
79.8
87.4
Emerging
54.0
70.3
79.8
87.0
92.8
98.9
104.5
107.7
109.2
110.1
108.6
106.4
100.3
91.1
82.0
Surviving
103.3
82.4
73.4
63.9
54.6
45.2
36.5
28.4
20.8
14.4
8.2
2.3
Total
168.6
170.3
172.0
173.7
175.4
177.2
178.9
180.7
182.5
184.4
186.2
188.1
189.9
191.8
193.8
Urban households (mn)
Real-rich
0.4
1.3
2.3
3.4
4.5
5.7
7.0
Upper-class
0.7
1.4
2.3
3.1
4.1
5.1
5.8
6.0
6.2
6.4
8.5
8.5
10.0
Prospering
6.5
8.8
9.0
10.3
12.2
14.2
16.0
17.8
20.8
24.4
28.1
32.0
35.3
40.6
44.7
Evolving
19.7
25.3
29.2
32.7
35.7
38.9
42.9
47.1
49.8
52.1
54.3
56.7
57.8
58.9
59.8
Emerging
38.1
40.4
41.2
41.2
41.3
41.2
39.0
35.9
32.9
29.9
26.9
23.7
20.4
17.1
13.8
Surviving
16.6
9.7
7.5
5.4
3.1
0.9
Total
80.9
84.2
87.6
91.0
94.6
98.3
102.0
105.8
109.7
113.8
117.9
122.1
126.4
130.9
135.4
Real-rich
Upper-class
Prospering
Evolving
Emerging
Surviving
Total
0.4
1.3
2.3
3.4
4.5
5.7
7.0
0.7
1.4
2.3
3.1
4.1
5.1
5.8
6.0
6.2
6.4
8.5
9.7
12.8
6.5
8.8
10.2
13.0
16.3
19.7
23.1
26.4
31.0
36.2
41.5
47.0
54.6
60.3
66.4
31.0
42.9
46.7
52.8
59.6
66.5
73.8
83.1
92.2
100.3
110.4
121.0
128.1
138.7
147.2
92.1
110.7
121.0
128.3
134.1
140.0
143.5
143.6
142.1
140.0
135.4
130.1
120.6
108.3
95.8
119.9
92.1
81.0
69.3
57.7
46.1
36.5
28.4
20.8
14.4
8.2
2.3
249.5
254.4
259.5
264.7
270.0
275.4
280.9
286.5
292.3
298.1
304.1
310.2
316.4
322.7
329.1

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A LOOK AT THE COUNTRYSIDE

Food and water
The wealth effect in farming is very pronounced

There may not be any financial yield in agriculture but that does not mean there are no capital gains!
Farming does not provide a good yield
Economics for the farmer assuming two-crops, none fails
Location
Description
Typical cropping cycle
Cropping pattern
Realization (Rs/acre)
Land price (Rs/acre)
Yield (%)
Rate of interest of public sector banks
Interest subvention by central government
Interest subsidy by MP government
Cost to farmer (%)
Yield above cost of capital
Rural - irrigated
Mangrol
120 kms off Bhopal
Two a year
Wheat and soya
24,000
350,000
6.9
9.0
2.0
4.0
3.0
3.9
Rural - unirrigatged
Mangrol
120 kms off Bhopal
Two a year
Wheat and soya
18,000
275,000
6.5
9.0
2.0
4.0
3.0
3.5
Semi-urban
Sehore
5 kms from Sehore
Two a year
Wheat and soya
24,000
700,000
3.4
9.0
2.0
4.0
3.0
0.4
Urban
Misrod
12 kms from Bhopal
Two a year
Wheat and soya
24,000
10,000,000
0.2
9.0
2.0
4.0
3.0
(2.8)
Source: Discussion with landowners, KIE calculations
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The agriculture value chain is very fragmented

Significant scope to upgrade productivity
India has vast scope to improve productivity
Comparing productivity of Indian agriculture with the world, March fiscal year-end, 2007 (kg/ha)
Country
World
Bangladesh
Brazil
China
India
Indonesia
Japan
USA
Paddy
4,223
4,012
3,826
6,422
3,303
4,705
6,511
8,092
Country
World
China
Egypt
France
India
Italy
Spain
United Kingdom
Source: Agriculture Statistics at a Glance, 2009
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Wheat
2,829
4,608
6,478
6,256
2,704
3,568
3,470
7,225
Country
World
Agentina
Canada
China
India
Italy
Turkey
USA
Maize
5,010
7,666
8,511
5,151
2,440
9,144
6,838
9,458
Bt Cotton has gained traction: increasing yield

Increasing area cultivated with Bt Cotton (mn ha), yield (kg/ha)
2002
2003
2004
2005
2006
2007
2008
2009
Cotton area
7.7
7.6
8.8
8.7
9.1
9.4
9.3
9.3
Bt Cotton area
0.2
0.6
1.1
3.8
6.2
7.6
8.9
Yield
186
191
307
318
362
421
560
591
Source: KPMG, Indiastat, Industry analysis
50
50
Land holding is fragmenting even as the youth opts out of agriculture

Operational consolidation should begin to take place
Land fragmentation continues apace
Holdings of land by number and area, March fiscal year-ends, 1971-2011
'000 holdings
Marginal
Small
Semi-Medium
Medium
Large
Total
'000 ha
Marginal
Small
Semi-Medium
Medium
Large
Total
ha/holding
Marginal
Small
Semi-Medium
Medium
Large
Total
1971
1976
1981
1986
1991
1996
2001
2006
2011
<1.0 ha
1.0-2.0 ha
2.0-4.0 ha
4.0-10.0 ha
>10.0 ha
36,200
13,432
10,681
7,932
2,766
71,011
44,523
14,728
11,666
8,212
2,440
81,569
50,122
16,072
12,455
8,068
2,166
88,883
56,147
17,922
13,252
7,916
1,918
97,155
63,389
20,092
13,923
7,580
1,654
106,637
71,179
21,643
14,261
7,092
1,404
115,580
75,408
22,695
14,021
6,577
1,230
119,931
83,694
23,930
14,127
6,375
1,096
129,222
92,356
24,705
13,840
5,856
1,000
137,757
<1.0 ha
1.0-2.0 ha
2.0-4.0 ha
4.0-10.0 ha
>10.0 ha
14,599
19,282
29,999
48,234
50,064
162,318
17,509
20,905
32,428
49,628
42,873
163,343
19,735
23,169
34,645
48,543
37,705
163,797
22,042
25,708
36,666
47,144
33,002
164,562
24,894
28,827
38,375
44,752
28,659
165,507
28,121
30,722
38,953
41,398
24,160
163,355
29,814
32,139
38,193
38,217
21,072
159,436
32,026
33,101
37,898
36,583
18,715
158,323
35,410
35,136
37,547
33,709
17,379
159,180
<1.0 ha
1.0-2.0 ha
2.0-4.0 ha
4.0-10.0 ha
>10.0 ha
0.40
1.44
2.81
6.08
18.10
2.29
0.39
1.42
2.78
6.04
17.57
2.00
0.39
1.44
2.78
6.02
17.41
1.84
0.39
1.43
2.77
5.96
17.21
1.69
0.39
1.43
2.76
5.90
17.33
1.55
0.40
1.42
2.73
5.84
17.21
1.41
0.40
1.42
2.72
5.81
17.13
1.33
0.38
1.38
2.68
5.74
17.08
1.23
0.38
1.42
2.71
5.76
17.38
1.16
Fewer youth in agriculture

Proportion of people in agriculture
across ages, quarter ended June
2012
Age (years)
15-20
20-25
25-30
30-35
35-40
40-45
45-50
50-55
55-60
Overall
Proportion
19.7
21.2
24.7
28.2
30.9
32.8
34.8
37.0
40.0
31.3
Source: CMIE survey of 700,000 individuals

quoted on Ajay Shah's blog
Source: Agri census 2011
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Incomes increasing in agriculture and in rural India, in general

Farming profit growth beat inflation in the past decade, driven significantly by Government intervention
Profitability has improved significantly
Estimated profitability at the start and end of the decade, March fiscal year-ends, 2001-10
Yield (qtl/ha)
MSP/market price (Rs/qtl)
Realization (Rs/ha)
Estimated cost (Rs/ha)
Estimated profit (Rs/ha)
Paddy (Common)
2001-03
2009-10
19
22
520
1,500
9,922
32,790
7,546
14,646
2,375
18,144
Wheat
2001-03
27
603
16,239
11,541
4,698
2009-10
29
1,100
31,977
16,799
15,178
Lentils
2001-03
6
1,273
8,134
9,501
(1,367)
2009-10
6
2,500
15,550
11,064
4,486
Source: Agriculture Statistics at a Glance, 2009, Agricultural Economics Research Review, Vol. 23, Jan-Jun 2010
Significant boost to rural incomes over the past decade

Computation showing the changing profile of rural incomes, March fiscal year-ends, 2004-13
2004
Agriculture - important commodities
Wheat (Rs/qtl)
630
Paddy-Grade A (Rs/qtl)
590
Dairy (Rs/lit)
15
Government schemes - flagship scheme
MG-NREGA
Agricultural credit
From organized sector
Total
Prices
2013
Inc (%)
1,350
1,250
20
114
112
30
Production (mn tons)

2004
2013
Inc (%)
72
89
88
94
104
128
30
17
45
Value (Rs bn)

2004
2013
Increase
(Rs bn)
(%)
455
522
1,357
1,269
1,300
2,558
814
778
1,201
179
149
88
400
400
905
3,239
5,899
11,426
4,994
8,187
552
253
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Logistics is the bane of Indian agriculture

Poor storage and long distances lead to a significant fall in output
India has been storing well above its buffer requirements
Buffer norms and actual stocks of staples, quarter ends, March fiscal year-ends, 2000-2013 (mn tons)
Buffer norms (without strategic reserve)
90
Actual stock
80
70
60
50
40
30
20
10
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: Food Corporation of India, Kotak Institutional Equities
More than a tenth of the produce is lost due to poor infrastructure

Break-up of wastage by location of waste, March fiscal year-end, 2009 (%)
From farm-gate to mandi

Within district
Within state
Outside state
Total
Potato
Onion
Other vegetables
Fruits
Food-grains and
oilseeds
Average
4
3
2
2
11
6
2
1
2
11
8
1
2
2
13
9
4
3
3
19
4
2
2
2
10
8
2
1
1
12
Source: Industry estimates

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Water is a US$30 bn-a-year industry in India

No scare scenario presently, but the future can be markedly different
Agriculture will remain the biggest water consumer in India
Table showing current and projected water demand (billion cubic meters)
Agriculture
Industry
Energy
Residential
Total
2010
688
64
5
56
813
2025E
910
95
15
73
1,093
CAGR (%)
1.9
2.7
7.6
1.8
2.0
Breakdown (%)
2010
2025E
85
83
8
9
1
1
7
7
100
100
Supply is plentiful
Sources of water (annual flow, bcm)
Annual precipitation (including snowfall)

Average annual availability
Estimated utilizable water resources, of which
- Surface water resources
- Ground water resources
4,000
1,869
1,123
690
433
Source: MOSPI, Kotak Institutional Equities estimates
Source: Ministry of Water Resources
Indias storage capacity is relatively small

Water storage per capita in different countries (m3 per capita)
Ground water use has been rising faster than surface water
Plan-wise irrigation potential utilized through surface/ground water in India
(mn ha)
USA
Australia
China
Spain
Morocco
India
Pakistan
6,000
5,000
2,500
1,500
500
200
100
Source: Indias Water Economy - Bracing for a Turbulent Future, World Bank
Surface-water
100
Groundwater
80
60
40
20
0
Preplan
I plan
II plan
III plan IV plan V plan VI plan VII plan VIII plan IX plan X plan
Source: Census of India, Kotak Institutional Equities analysis
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City water distribution is a mess

High non-revenue water, low tariffs lead to low availability, poor quality
Water utilities in India work at below operating costs, providing poor service
Various parameters for understanding the function of urban water utilities, FY2007
Ahmedabad
Amritsar
Bangalore
Bhopal
Chandigarh
Chennai
Coimbatore
Indore
Jabalpur
Jamshedpur
Kolkata
Mathura
Mumbai
Nagpur
Nashik
Rajkot
Surat
Varanasi
Vijayawada
Vizag
All India avg
US$ mn
Average
tariff
(Rs/m3)
1.4
9.3
20.6
0.6
5.0
10.9
3.7
2.8
1.5
4.5
1.1
0.6
4.6
6.6
4.3
5.1
1.7
3.2
2.2
8.6
4.9
Unaccounted
for water
(%)
NA
57.0
45.0
NA
39.0
17.0
41.0
NA
14.0
13.0
35.0
NA
13.0
52.0
60.0
23.0
NA
30.0
24.0
14.0
31.8
Revenue
(Rs mn)
223
172
4,255
100
404
3,127
135
165
62
532
260
9
8,789
561
182
92
NA
140
91
525
19,823
431
O&M
(Rs mn)
318
234
3,414
282
548
1,388
111
881
104
328
1,228
28
4,284
424
214
148
NA
182
104
411
14,629
318
Operating
ratio
(X)
1.4
1.4
0.8
2.8
1.4
0.4
0.8
5.3
1.7
0.6
4.7
3.1
0.5
0.8
1.2
1.6
NA
1.3
1.1
0.8
1.6
Availability
(hours/day)
2.0
11.0
4.5
1.5
12.0
5.0
3.0
0.8
4.0
6.0
8.3
2.0
4.0
5.0
3.5
0.3
2.5
7.0
3.0
1.0
4.3
Source: Asian Development Bank

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Pricing of water in India will progressively change

Will the European model work in India? Some examples
Indian water charges are one-hundredth of highest prices charged internationally
Charges in US$ per m3, FY2009
Country
China
Denmark
France
Germany
India
Netherlands
Russia
South Korea
United Kingdom
United States
Water
0.27
8.83
3.58
3.12
0.08
1.26
0.35
0.49
2.03
1.03
Waste water
0.12
0.66
1.75
0.24
0.16
2.20
1.42
Combined
0.39
8.83
4.24
4.87
0.08
1.26
0.59
0.65
4.23
2.45
Domestic use (lpcd)

95
114
232
151
139
NA
NA
552
139
616
Source: Discussion with farm owners, Kotak Institutional Equities estimates
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Indialogue

the job market

food and water

a great consumption story

but where are the jobs?

demographic dividend, literacy,

taxes, subsidies and

identity, interaction, money

Indian population growth slowing; literacy, life expectancy rising

Sex ratio (Females per 1000 males, LHS)

Decadal growth (%, RHS)

Population (mn, LHS)

Sex ratio, 1901-2011

India's population growth is slowing - though absolute increase still large

Source: Census of India, Kotak Institutional Equities

Source: Census of India, Kotak Institutional Equities

India's population to rise to 1.4 bn by FY2025E

Significant gains in overall literacy: 2 of 3 women, 3 of 4 men are literate

2001-05 2006-10 2011-15

Source: Census of India, Kotak Institutional Equities

Demographic dividend will keep dependency ratios low

Over the next 15 years, all growth in population will be urban

WATCH A POLITICAL GAME

Understanding the Indian political equation

The demographic dividend can also impact political outcomes

2009 election turn-outs

Voter turnout (%)

Source: Election Commission of India, KIE estimates

Source: Election Commission of India, KIE calculations

Votes and seats are not meaningfully correlated

Understanding swing seats is half the parliament safe?

Source: Election Commission of India, KIE analysis

INC has well spread out "safe" seats

BJP's "safe" seats are more clustered

Daman & Diu

Source: Election Commission of India, KIE analysis

Digitization of (1) identity, (2) interaction and (3) money

Source: Kotak Institutional Equities

G2B and G2C interactions have been significantly digitized

Source: An RTI query reported in the Economic Times, KIE analysis

Source: Income tax department, Government of India

Land record digitization is progressing in many states

Meaningful progress in registering land records online

Land records and registration offices

Source: Bhoomi project, Karnataka

Source: Department of Land Resources, Ministry of Rural Development

Persons with a common

Start from PAN or

Source: Income tax department

Improving productivity of subsidies through better targeting via UID

Initial thrust of DBT on 25 social schemes and LPG

Source: Government of India

Government wants to reach the last man, banks cannot

Less than 100

The holy grail of UID will be to channel the Rs3 tn of subsidies

Source: Census of India, 2001

A rural branch is not sustainable with current cost structures

Source: Government of India, Kotak Institutional Equities estimates

Source: Kotak Institutional Equities estimates

Banks moving towards low-cost model, various BC models emerging

Banking Correspondent model critically dependent on increasing transactions

Source: Discussion with industry players, Kotak Institutional Equities estimates