Study on the Indian Service Sector

d. comfort, e. purchasing power, f. social forces &. industrial growth.

The sector contribution to the nation’s GDP in 2002-03, 2003-04, 2004-05, 2005-06 were 7.9%, 8.2%, 8.5% & 9.1% respectively.

Transport sector includes:

1. Railways
2. Roads & Highways
3. Ports
4. Metro Rail
5. Civil Aviation
6. Inland Waterways

Present Scenario

With Indian economy growing at a pace of 9.3%, there is an urgent need for proper &sophisticated infrastructure facilities including transport facilities like roads, railways etc inorder to sustain the growth at this pace.

“The importance of infrastructure for rapid economic development cannot be overstated.  The most glaring deficit in India is the infrastructure deficit.”

                                -Shri P. Chidambaram, Budget Speech 2005-2006

 “India must have $320 bn investment in infrastructure during the next 5-7 years for ensuring desired 9-10% growth momentum”.

-Mr. Manmohan Singh, 8th October, 2007

Table 1: Trend in growth of physical output in transport sector    (in percent)

C. Indian Railways

Indian Railways, world’s second largest rail network under a single management, is  contributing to the development of the country’s industrial and economic landscape for over 150 years. It has an extensive route length of over 62,800 kilometers and with 1.4 million manpower, it is running 8049 passenger trains and 5500 goods trains daily, moving 13.6 million passengers and 1.2 million tonne of goods every day.

 Over a span of five years -- 1999-2000 to 2005-06 -- Railways fund balance swelled by hefty 7953 percent to Rs 12000 crore from a meagre Rs 149 crore in at the end of fiscal year 1999-2000.

Railways create history by generating a cash surplus before Dividend of Rs 20,000 cr in 2006-07 as against Rs 14,700 cr in the previous year & that too without imposing undue burden on the common man.

Of the two main segments of the Indian Railways — freight and passenger — the freight segment accounts for roughly two-thirds of revenues. Within the freight segment, bulk traffic accounts for nearly 95 percent, of which more than 44 percent is coal.

Table 2: Performance of the Indian Railways

Dynamic Commercial Policy

1. Dynamic Pricing Policy: The dynamic pricing policy for freight traffic introduced in the year 2006-07, has paid rich dividend. This has prompted the Railways to make a policy for reducing fares at varying rates, for all services of AC Ist class and AC II tier class and new design coaches for AC III tier and AC Chair Car, during peak and non-peak seasons, in popular and unpopular trains.
2. Dynamic Wharfage Rate: At present the wharfage rates and free time are the same at all terminals whether small or big, busy or unused. It is decided to increase free time allowed for loading and unloading and to reduce wharfage rates at under utilized small terminals.
3. Dynamic Demurrage Rate: During non-peak period on an experimental basis, at a few terminals, one hour extra free time will be given depending on the state of usage of the terminals.
4. Tariff Policy : Due to lack of traffic, two-thirds of Railways network is being utilized at far less than its capacity. It has now been decided that goods traffic originating and terminating on these underutilized routes will be given a discount on normal freight rates.

Future Investments

1. Indian Railways will invest $ 1.5 billion or Rs 6000 crore over the next five years to upgrade IT facilities in rail network.
2. During 11th plan(2008-12) period Indian Railways would like to achieve freight loading target of 1100 million tonnes and passenger traffic target of 840 crores.
3. Mission 200 MT - Railways’ target higher share in transportation of Cement and Steel - 200 MT each by 2011-12. Mission 100 MT - container traffic target of 100 MT by 2011-12.
4. Construction of Eastern and Western Dedicated Freight Corridors at a cost of Rs 30,000 cr will commence from 2007-08 for completion during the 11th plan.

D.  Indian Roadways

India has the second largest road network in the world. They carry almost 90 percent of the country’s passenger traffic and 65 percent of its freight. The density of India’s highway network -- at 0.66 km of highway per square kilometer of land – is similar to that of the United States (0.65) & much greater than China's (0.16) or Brazil's (0.20).

The India has a network of roads of 3.3 million km of length running all over the country.

Table 3 : The Categorisations of Road Lengths

Automotive Industry in India

From 60 million vehicles in 2005

•   537 million in 2030 (9% annual growth)
•   671 million in 2030 (10% annual growth)

India: 11 times increase in car and 2-wheeler ownership (2000-30)

Graph 1: Effect of Increasing Income on Sales of Automobiles         

National Highways

The national highways are categorised into double lane and single lane or intermediate lane. As on February 28, 2007, the Double Lane national highways constitute 55% of total length of 66,590km of national highways followed by Single Lane or Intermediate Lane (35%) and Four or More Lanes (10%).

 NHAI has started National Highways Development Project(NHDP) to form a  network of highways in the country.

Table 4: Phases and Status of National Highways Development Project

Graph 2: Total Road Sector Revenue & Expenditure for the FY 2002-07

Funding for Maintenance of Roads

1. Budgetary allotment of funds: To improve the condition of roads, Government allocates a portion of its budgetary expenditure on development of roads and highways. It has allocated 11452.68 crores, 16706 crores, 5103 crores and 814.38 crores for Central Roads, State roads, Rural Roads & NHs respectively in the fiscal year 2006-07.

GoI has launched Bharat Nirman Yojana to upgrade rural infrastructure providing the road connections to more than 38,484 villages above 1000 population and all 20,867 habitations above 500 populations in hilly and tribal areas. 1,46,185 km of road length is proposed to be constructed by 2009and about Rs 48,000 crores is likely to be invested for this project.

2. Central Road Fund: It was constituted in 1929 with a motive to develop and maintain roads of India. It levied customs and exercise duties on High Speed Diesel (HSD) and petrol @Re 1/litre. Duties were raised to Rs. 1.50 in 2004, which further raised to Rs. 1.50/ litre for all NHs in2005. . It has allocated 6407.45 crores, 1706.07 crores, 3725.62 crores and 710.86 crores for NHs, State roads, Rural Roads &ROBs/ RUBs respectively in the year 2006-07.

3. Lending from International Institutions

• World Bank: It funded USD 0.51 billion in 1992 ,which was increased to USD 1.97 billion in 2005-06.  
• Asian Development Bank (ADB): It funded USD 0.43 billion in 1992 ,which was increased to USD 1.79 billion in 2005-06.
• Overseas Economic Cooperation Fund(OECF): It has given an aid of USD 0.21billionin 2004-05.

R&D in Road Sector

 An amount of Rs100 crore has been earmarked by the government for the Research and Development (R&D) activities in the National Highways sector during the 11th Five Year Plan. This plan emphasises research on conservation of materials used in the construction of roads, innovations in construction technology, environmental impact and road safety measures,  etc.

E. Indian Ports

Ports not only play a crucial role in facilitating international trade but also act as

fulcrums of economic activity in their surroundings and hinterland. The coastline of 7,517 kms spread over 13 States/ UTs is studded with 12 major ports and 187 minor ports. The share of traffic by public ports is 72% while the rest 28% is shared among other non-public ports. The total traffic carried by both the major and minor ports during 2005-06 was estimated at around 570 MT. The 12 major ports carry about three fourths of the total traffic, with Vishakapatnam as the top traffic handler in each of the last six years.

National Maritime Development Programme

It is formulated with a view to meet the projected growth in EXIM trade .387 projects identified to be taken up in a defined time frame in Ports Shipping & IWT Sector. 276 projects in Ports with investment of US $ 12400 Million & 111 projects in Shipping & IWT with investment of US $ 9897 Million. Emphasis is to be given on PPP. Private investment is to be allowed in commercially viable projects while Public investment is mainly done in common user facilities. Greater emphasis is to be given on Multi-lateral cooperation with foreign equity investment upto 100% is to be allowed.

Public- Private Sector Partnership

1. 17 projects involving private investments of over US $ 1360 Million have been approved.
2. 13 projects involving investments of about US $ 590 Million have already started operations.
3. 4 projects involving about US $ 770 Million are in different phases of implementation.
4. Presence of renowned international operators

• Dubai Port International : Cochin and Visakhapatnam
• PSA Corporation : Tuticorin
• P&O : Jawaharlal Nehru Port and Chennai
• MaerskA/S : Jawaharlal Nehru Port

Ports Prospects

Sethusamudram Shp Channel Project envisages dredging of a ship channel in the shallow portion of the sea to connect the Gulf of Mannar and the Bay of Bengal through the Palk Bay. The project is estimated  to cost Rs. 2,427.40 cr.

Indian exports are set to double by 2011 and reach a level of $ 150 bn. About 95% of export volumes are expected to move through maritime route. Cargo handling at ports is set to grow at 7.7% per annum and is expected to reach 1bn ton by 2013.

F. Indian Civil Aviation

History

The first commercial flight in India was made on February 18, 1911, when a French pilot Monseigneur Piguet flew airmails from Allahabad to Naini, covering a distance of about 10km in as many minutes.

For many years in India air travel was perceived to be an elitist activity. This view arose from the “Maharajah” syndrome where, due to the prohibitive cost of air travel, only the rich people could afford it.

Present Scenario

Until less than a decade ago, all aspects of aviation were firmly controlled by the Government. In 1991, Government adopted Open Skies Policy in order to promote Travel & Tourism.

Airport Infrastructure

In India, airports were totally owned and managed by central government or the armed forces. The Airport Authority of India (AAI), a body functioning under the Ministry of Civil Aviation was responsible for managing the airports in India. It owns 122 airports, 61 of which are operational. The breakdown is as follows:

• 11 international
• 94 civil
• 27 civil enclaves at defence airfields.

India’s airports handle 42 million passengers, of which the four Metro gateway  airports (Delhi, Mumbai, Kolkata and Chennai) account for 47% of revenue and 66% of the passengers.

In Apr-Dec 06, the domestic market has grown at about 46%, from 62000 to 91000 passengers per day, over and above growth of 25% in Apr-Dec 05 over 04.In Dec’ 06, domestic market witnessed average daily carriage of around 114,000 passengers per day – another first for the industry. According to projections, Indian air passenger traffic was estimated to grow to 100 million passengers by 2012.

Challenges

1. Declining yields

• LCCs and other new entrants together now command a market share of around 46%
• Increasing growth prospects have attracted & likely to attract more players
• More players – more competition – lower fares – a continuous cycle

2. Building on cost efficiencies

• Airlines have to build on their cost efficiencies & drive down costs below the yield that their product will fetch, to return to profits
• For an industry that is estimating losses of US$ 500-550 million by end of current fiscal, this is a daunting challenge

3. High input costs

• ATF prices in India continue to be far higher than global rates, making ATF account for 35-40% of operating cost, as against global average of 20-25%
• High basic rates aggravated by high taxes imposed by State Govt.
• Increasing manpower costs due to shortage of technical personnel

4. Gaps in Infrastructure

• Airport and ATC infrastructure inadequate to support growth
• Higher fuel consumption , Lower utilisation of aircraft, Sub-optimal route network strategies, increased passenger facilitation cost.

Opportunities

1. A large & growing potential market

• The 4th largest & 2nd fastest growing economy in the world - GDP growth of 9.2% in Q3 2006
• Disposable incomes expected to increase at an average of 8.5% p.a. till 2015 (Price Waterhouse Coopers, 2005)
• 390 million strong domestic tourism market, growing at ~13%
• Foreign tourist inflows of 4.43 million, also growing at ~13%

2. Air Cargo

• Freight carriage in India currently around 4200 tons per day
• CAGR of 15% over the past 2 years. Forecast to grow at 11.4% p.a. till 2011-12

3. Access to new markets

• As airlines complete 5 years of domestic operations, those with 20+ aircraft will get international access
• The opportunity for some will be a challenge for the existing international players
• The risk – cycle of increased competition, low yields, and growth transferred to the international arena

G. Indian Metro Railways

The idea of building an underground railway was conceived in 1949 inorder to reduce burgeoning transport problem.

Kolkata Metro

 The first Metro Transport Project started in Kolkata in 1969. The MTP (Rlys) had prepared a Master Plan in 1971 envisaging construction of five rapid transit lines for the city of Kolkata , totalling to a route length of 97.5km. Of these, the highest priority was given to the busy North-South axis between Dum Dum and Tollygunge over a length of 16.45 km with 8 stations and the work on this project was sanctioned on 1.6.72. The total cost estimated was Rs. 1825 crores.

Delhi Metro

The Delhi MRTS Project of launching an Integrated Multi Mode Mass Rapid Transport System of 198.5 km with 140 stations was commissioned by GNCTD in 1989. The project is been implemented through a joint venture company (viz., Delhi Metro Rail Corporation Ltd.) set up on 50:50 partnership basis by GOI and GNCTD in May, 1995 and will be completed in next 10 years. The project will be completed in two phases. The Phase is proposed to be completed by 2005 & the cost estimated is Rs10,571 crores. The Phase II to be completed by 2010.

The expected economic rate of return is 21.4%.

After completion, the DMRC estimates as much as 2.2 million commuters will use the metro daily. It is reckoned that the metro will result in savings of Rs 40 lakh every day from lower wear and tear of roads, savings in petrol and diesel and the need to build new roads.

Banglore Metro

The Bangalore Metro weaves through the bustling commercial and residential areas of the city. The first phase of Bangalore Metro, consisting of two corridors of double line electrified, will cover a total of 33 km. Out of the 33 km., 6.76 km. will be underground near City Railway Station, Vidhana Soudha, Majestic and City Market and most of the rest will be elevated. The East-West Corridor: It will be 18.10 km. long, starting from Byappanahalli and terminating at Mysore Road terminal.

The North-South Corridor: The 14.90 km corridor will begin at Yeshwantpur Terminal and terminate at R.V. Road terminal.

The Bangalore Metro Rail finally took shape with the Karnataka Government clearing the project in March, 2005 and the Union Government giving its approval in Apr 06.

The economic rate of return is 22.3%.

Hyderabad Metro

City's first metro rail will operate from January 2009. The works of the Mass Rapid Transit System (MRTS) will begin from December 2006 and all the three proposed corridors will be opened for the public by the end of December 2010. The total project cost has been calculated to be Rs 7,986 crore including taxes, which comes around Rs 1,300 crore. Of the total project cost, about 35 per cent will be shared by both the Centre and the state government. While the Centre will bear 20 per cent to 25 per cent, the state government will bear 10 per cent to 15 per cent. The Build Operate and Transfer (BOT) developers, who will invest 65 per cent in the project, will be permitted to operate trains and collect revenue on tickets and through advertisements for 35 years and later the entire project would be handed over to the state government.

Mumbai Metro

The Mumbai Metro Rail would be 146.5 km long and estimated to cost Rs 19,500 crore. There are nine lines, of which 32.5 km would be underground and 114 km elevated rails.

The plan is to be completed in three phases. The phases are:

• The first phase will connect Colaba (Backbay), Mahim and Charkop (36 km), and Versova-Andheri-Ghatkopar (15 km).
• The second phase will connect Mahim and Mankhurd (12.8 km), Charkop-Dahisar (7.5 km) and Ghatkopar-Mulund (12.4 km).
• The third phase will connect Bandra-Kurla complex to Kanjur Marg via the airport (19.5 km), Andheri (East)-Dahisar (East) (18 km), Hutatma Chowk to Ghatkopar (21.8 km) and Sewri-Prabhadevi (3.5 km).

The first phase would be fully functional by 2011, second phase by 2016 and third phase by 2021.

A consortium led by Reliance Energy Ltd (REL) of the Anil Dhirubhai Ambani Group has won the Rs 2,356-crore contract for the first phase of the Mumbai Metro Rail project. The economic rate of return is expected to be 26%.

H. Indian Inland Waterways

India, the largest peninsula in world, has a coast line of 6,000 km. India’s navigable and potentially navigable inland waterways extend to nearly 14,500 km and comprises of rivers, lakes, canals, breakwaters, etc. It forms a small part of the total transport network of the country in spite of being energy efficient, economical, and environment friendly. The primary reason for the low share of IWT traffic is its spatial limitation.

If waterways are developed for navigation with the necessary infrastructure such as fairway, terminals and navigational aids the Inland Waterways Transport (IWT) mode would become competitive and would attract cargo. Hence the objective of the inland waterway transport sector is to provide the above facilities in all potential inland waterways for their systematic and sustainable development for shipping and navigation.

The Inland Waterways Authority of India (IWAI) was thus set up in October 1986 for regulation and development of the inland waterways for the purposes of shipping and navigation under the Inland Waterways Authority of India Act, 1985.

The three waterways that have been declared as National Waterways and taken up for development are:

1. National Waterway 1: Allahabad-Haldia stretch of the Ganga Bhagirathi Hooghly river system (1620 kms) in October

2. National Waterway 2: Saidiya Dhubri stretch of the Brahmaputra river system (891 kms) in September, 1988

3. National Waterway 3: Kollam Kottapuram stretch of West Coast Canal (168 kms) alongwith Champakara canal (14 kms) and Udyogmandal canal (23 kms) in Feb, 1993

Benefits

IWT has a number of benefits:

• Savings in Operating Cost: Operating cost of  transportation by trucks was estimated at Rs. 1.09 per tonne-km and for IWT at Rs. 0.13 per tonne per km. The present value of savings in operating works out to be Rs. 70 crore.
• Savings due to Avoidance of Accidents in Terms of Numeraire: Movement of cargoes via inland waterways save 36crores of rupees than the transport via roads and highways.
• Savings due to Reduced Government Expenditure on Medical Aid: The present value of the expenditure incurred by the government in combating diseases caused by air pollution arising out of road transportation was calculated to be Rs. 17 crore. This expenditure can be taken as savings or gains due to IWT as it is a pollution free mode of transport.
• Economic Gains through Additional Jobs : Due to IWT the number of villages getting benefit is 5.3million and  employment  opportunities estimated is Rs. 782 crores ie roughly 3,000 new jobs are created in the influence area for every kilometre of operation of inland waterways

Future Projects

According to the 24th Quarterly Survey of Projects Investments (30 September 2006) conducted by ProjectsToday, the sector had 24 projects worth Rs.1,256 crore in various stages of planning and implementation.

Of the total projects, worth Rs.1,204 were in the nascent stage. The project implementation ratio is very low at 4.1 per cent as compared to national average of 44.03 per cent.

IWAI had been making concerted efforts to attract private sector investment in IWT sector through Joint Venture route.

The NCAER research study estimates the total potential transportation demand for all commodities for transportation by the IWT mode at 6 billion tonne-km in 2010-11 and at 7.7 billion tonne-km in 2020-21.

I. Conclusion

Quality and efficient infrastructure services are essential to realize the full potential of the growth impulses surging through the Indian Economy. Exclusive dependence on government for the provision of all infrastructure services introduces difficulties concerning adequate scale of investment, technical efficiency, proper enforcement of user charges, and competitive market structure. At the same time, complete reliance on private production, particularly without appropriate regulation, is also not likely to produce optimal outcomes. Therefore, the investments are to be achieved through a combination of public investment, public-private-partnerships (PPPs) and exclusive private investments, wherever feasible.

An investment of Rs.14,50,000 crore or about US$320 billion would be required in the infrastructure sector during the Eleventh Five Year Plan. Investment of Rs.2,20,000 crore for modernization and upgradation of highways; Rs.40,000 crore for civil aviation; Rs.50,000 crore for ports; and Rs.3,00,000 crore (of which 40 per cent is expected to come from the private sector through PPP) for the Railways.

J. Reference / Bibliography

• Business line
• The Economic Times

• http://morth.nic.in/index2.asp?sublinkid=380&langid=2
• http://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/
• http://www.kolmetro.com/projects/index.html
• http://delhigovt.nic.in/dmrc.asp
• http://idei.fr/doc/by/crampes/connexions.pdf
• http://www.mapsofindia.com/maps/inlandwaterways/importantinlandwaterways.htm
• http://www.thehindubusinessline.com/2006/05/19/stories/2006051904150900.htm
• http://www.indiaonestop.com/railway/dynamiccommercialpolicy.htm
• http://www.projectstoday.com/includes/index.asp?referrer=/projects/project.asp&qr=
• http://www.mapsofindia.com/maps/inlandwaterways/importantinlandwaterways.htm

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The Study on Indian Education System

Prepared By

Rohit Kumar Sinha

0701198

Executive Summary

Education is a basic tool for self-defence in modern society. The feeling of powerlessness that goes with being illiterate comes through loud and clear in any conversation with ordinary people. India has a long history of organized education. The Gurukul system of education is one of the oldest on earth.

The current system of education, with its western style and content, was introduced & funded by the British in the 19th century, following recommendations by Macaulay. After independence, education became the responsibility of the states. In 1976 the education became a joint responsibility of the state and the Centre. Government of India made a commitment that by 2000, 6% of the Gross Domestic Product (GDP) will be spent on education, out of which half would be spent on the Primary education. The total state expenditure on education in the country has been around 3% of GDP, far below the 6% of GDP benchmark set by the government. The 86th Amendment of the Indian constitution makes education a fundamental right for all children aged 6-14 years. Central Budgets expenditure on education never exceeded 2.5% of total budgetary expenditure. The larger burden of expenditure on education is already being borne by the State governments whereas the promise of spending 6% of GDP on education contained in the Common Minimum Programme can only be achieved through a stepping up of Central government expenditure on education.

There is an increase in the proportion of total budgetary allocation on education spent on elementary education (from 39% in 1999-00 to 43.96% in 2002-03) with a concomitant fall in the proportion of expenditure on university and higher education (from 29.58% in 1999-00 to 17.34% in 2002-03). There is only a marginal increase in the expenditure on elementary education as a proportion of total budgetary expenditure in the recent years (0.94% in 1999-00 to 1.05% in 2002-03), which calls the bluff as far as 'prioritization' of elementary education is concerned, while there is a significant fall in the expenditure on university and higher education as a proportion of total budgetary expenditure (0.71% in 1999-00 to 0.41% in 2002-03).

When we talk about primary education, sixty years into independence, overall, according to the 2005-06 Government Survey there are 1,124,033 schools in India in which 21 crore students are there in schools and 6.3 crore of children are still out of school.

The absolute number of illiterate people in the population is steadily rising and is now around 50 crores. Moreover about half of all adolescent girls, are unable to read and write. There are so many myths regarding the poor performance of education sector in India but some of the realities are – even after providing with subsidized education to the people below poverty level, education is still expensive exercise for them. Moreover the kind of education provided in so many schools is useless because of the standard. The infrastructure of the schools and colleges is also pathetic. Corruption and different standards of teachings are some of the main reasons of poor performance. Some people advocate more private partnership in education but education is not an issue that could be dealt easily because it includes development of a person as a human resource but not just as a human being.

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HISTORY OF EDUCATION IN INDIA

Education is a basic tool for self-defense in modern society. The feeling of powerlessness that goes with being illiterate comes through loud and clear in any conversation with ordinary people. India has a long history of organized education. The Gurukul system of education is one of the oldest on earth. There was a general decline in education with the coming of British rule. Pre-British schools and colleges were maintained by grants of revenue-free land. The East India Company stopped this and thus starved the Indian education system of its financial resources.

The current system of education, with its western style and content, was introduced & funded by the British in the 19th century, following recommendations by Macaulay.

In 1976 the education became a joint responsibility of the state and the Centre. In 1992 it was envisioned that free and compulsory education should be provided for all children up to 14 years of age before the commencement of 21st century. Government of India made a commitment that by 2000, 6% of the Gross Domestic Product (GDP) will be spent on education, out of which half would be spent on the Primary education. The 86th Amendment of the Indian constitution makes education a fundamental right for all children aged 6-14 years.

EXPENDITURE ON EDUCATION

The limited spread of literacy and elementary education till date along with a miniscule proportion of the population having access to higher education provides a pathetic scenario, especially in the backdrop of tall claims regarding high rates of economic growth and technological advances achieved during the phase of economic liberalization. The post-liberalization period has actually witnessed a gradual withdrawal of the state from the sphere of education, adversely affecting both the spread as well as the quality of education in the country.

Public expenditure on education as a percentage of GDP (blue) and as a percentage of expenditure on all sectors together is shown in this graph

Public expenditure on education (green), on all sectors (blue) and India's GDP (red) are shown in this graph below

Here is the brief educational data of education in India

The table below shows the combined expenditure of the Central and State governments on education as a percentage of GDP in the recent years. The total state expenditure on education in the country has been around 3% of GDP, far below the 6% of GDP benchmark set by the government.

Source: Economic Survey, 2002-03.Notes: * Revised Estimate, ** Budget Estimate.

Table below demonstrates the proportion of resources spent for education through Central Budgets in recent years, with the percentage of expenditure on education never exceeding 2.5% of total budgetary expenditure.

Source: Calculated from Expenditure Budget and Demand for Grants, various years. Notes: * Revised Estimate; ** Budget Estimate

The larger burden of expenditure on education is already being borne by the State governments. The promise of spending 6% of GDP on education contained in the Common Minimum Programme can only be achieved through a stepping up of Central government expenditure on education.

This can be seen from table below that where there is increase in the proportion of total budgetary allocation on education spent on elementary education (from 39% in 1999-00 to 43.96% in 2002-03) with a concomitant fall in the proportion of expenditure on university and higher education (from 29.58% in 1999-00 to 17.34% in 2002-03).

Source: Calculated from Expenditure Budget and Demand for Grants, various years. Notes: * Revised Estimate; ** Budget Estimate

Only a marginal increase in the expenditure on elementary education as a proportion of total budgetary expenditure in the recent years (0.94% in 1999-00 to 1.05% in 2002-03), while there is a significant fall in the expenditure on university and higher education as a proportion of total budgetary expenditure (0.71% in 1999-00 to 0.41% in 2002-03).

Source: Calculated from Expenditure Budget and Demand for Grants, various years. Notes: * Revised Estimate; ** Budget Estimate

ELEMENTARY EDUCATION

Total schooling takes 12 years and is called 10+2 pattern. Primary school includes children of ages six to eleven, organized into classes one to five. Upper Primary and Secondary school students aged eleven through fifteen are organized into classes six through ten, and higher secondary school students ages sixteen through seventeen are enrolled in classes eleven through twelve.

PRIMARY EDUCATION

According to the latest Government Survey there are 1,124,033 schools in India in which 21 crore students are there in schools and 6.3 crore of children are still out of school. Two decades of focused programs in basic education have brought about a remarkable improvement in education indicators in India:

• Out of school children, most belonging to marginalized social groups, have been reduced from 25 million in 2003 to 9.6 million in 2005-06

• Net Enrolment Rate at primary level has risen from 68% in 1993 to 85% in 2005-06

• Transition Rates from the primary to the upper primary level have risen from 75 percent in 2002 to 83 percent in 2006.

• The gender gap has reduced. There are now 92 girls for every 100 boys in primary school.
• The social gap has narrowed. By 2005-06, scheduled caste children made up over 18% of all primary school children, better reflecting their presence in the overall population. Children belonging to scheduled tribes made up over 9% of all primary school students.

Moreover about half of all adolescent girls, are unable to read and write.
There are two myths that are often used to explain the slow progress of elementary education:

1. a supposed lack of parental motivation
2. Work keeps children from going to school.

But the actual problem is government ignorance. It is true that some children work long hours, making it difficult for them to go to school. But the general pattern is: most of them work for on an average three hours a day. When children work rather than go to school, it does not necessarily mean that work requirements are to blame for their failure to attend school. In many cases, it is the other way round: children work because they are unable to go to school.

While free education is a constitutional right, an analysis suggests that Indian parents spend about Rs. 366 per year to send a child to a government primary school. This may seem a small amount but can prove a major financial burden for millions of poor families with several children of school-going age. For an average agricultural labourer sending two such children to primary school would mean 30 to 40 days' wages.

The financial burden has a particularly harmful effect on the schooling of girls. The willingness of parents and children to make the required effort depends on what they can expect to get in return, in terms of schooling quality. The quality of schooling, more often than not, is abysmal. A research done by India Today reveals the availability of general infrastructure (in percentage terms) in India

In primary schools, there are about 50 children enrolled for each teacher. This implies that even if all teachers are always present and actively teaching during school hours, the total amount of teacher time per child is, on an average, just around one hour a month. The true figure is well below that, since teachers are often absent and spend little time in active teaching even when they are present. Even there are some single-teacher school.

Officially, single-teacher schools have been abolished in the country since Operation Blackboard (1986). But around one-third of all schools effectively had a single teacher. There are so many children in India who are officially literate but unable to write or read because little teaching goes on in government schools. Teachers coming late and leaving early is an accepted practice in rural schools. Even when the teachers are there, teaching activity is minimal. Teaching aids are seldom available, let alone used. In the classroom, the stick remains the most common teaching aid.

At the same time the literacy figure stands at about 95 in Himachal Pradesh and 100 percent in kerala, India's only fully literate state. This is because per capita expenditure in education in these states is twice that of the country average. The number of teachers per pupil is also twice as high comparing to other states.

The government's resolve to increase education expenditure to 6 per cent of GDP has gone hand in hand with a decline in public expenditure on education as a proportion of GDP, from 4 per cent in 1991-92 to 3.1 per cent in 1995-96. Similarly, the teacher-pupil ratio in 1981 was 26 among 1,000 pupils. In 1996, it was only 21.

The non-formal education (NFE) centres, meant for children who for some reason or the other cannot attend regular school, are in dismal condition.

At the other end, children attending urban schools, especially middle and upper class children in private schools, are subjected to extreme competitive pressures from a very early age to acquire basic language skills and memorize vast amounts of information in order to qualify for admission into the best schools.

The Indian Education System is generally marks-based. However, some experiments have been made to do away with the marks-based system which has led to cases of depression and suicides among students.

HIGHER EDUCATION

Education is on the 'Concurrent list'. Central Government is responsible for major policy relating to higher education in the country. It provides grants to the UGC and establishes central universities in the country and for declaration of Educational Institutions as 'Deemed to be University' on the recommendation of the UGC. Presently there are eighteen Central Universities in the country. Another Central University in the State of Mizoram is planned. There are 99 Institutions which have been declared as Deemed to be Universities by the Govt. of India as per Section of the UGC Act, 1956.

State Governments are responsible for establishment of State Universities and colleges, and provide plan grants for their development and non-plan grants for their maintenance.

Many of the universities along with their affiliated colleges have grown rapidly to the extent of becoming unmanageable. Therefore, as per National Policy on Education, 1986, a scheme of autonomous colleges was promoted. In the autonomous colleges, whereas the degree continues to be awarded by the University, the name of the college is also included. The colleges develop and propose new courses of study to the University for Approval. There are at present 138 autonomous colleges in the country.

The government is giving special thrust for quality improvement and modernization of syllabi, renewal of infrastructure, extra-budgetary resource mobilization and greater attention to issues in governance. Issues of access and relevance would receive attention. Conferment of grater autonomy to deserving colleges and professional up gradation of teachers through Academic Staff Colleges would be given priority. Emphasis is being placed on consolidation and optimal utilization of the existing infrastructure through institutional networking, restructuring expansion, so as to only meet the demand of the unserved areas with a focus on women and under privileged sections. The Open University system, which has been growing in popularity and size, is striving to diversify courses and offerings and gain wider acceptability by upgrading its quality. It would focus more sharply on the educational needs of women and rural society, as well as professional training of in-service employees.

UNIVERSITY GRANTS COMMISSION

The Government established university Grants Commission (UGC) by an Act of Parliament in 1956. It discharges the Constitutional mandate of coordination, determination, and maintenance of standards of teaching, examination and research in the field of University and Higher Education. UGC serves as a link between the Union and State Governments and the institutions of higher learning. It monitors developments in the field of collegiate and university education; disburses grants to the universities and colleges; advises Central and State Governments on the measures necessary for the improvement of university education; and frames regulations such as those on the minimum standards of instruction

 
It receives both Plan and Non-Plan grants from the Central Government to carry out the responsibilities assigned to it by law. It allocates and disburses full maintenance and development grants to all Central Universities, Colleges affiliated to Delhi and Banaras Hindu Universities and some of the institutions accorded the status of ‘Deemed to be Universities’. State Universities, Colleges and other institutions of higher education, receive support only from the Plan grant for development schemes. As on 31.3.2005, there were 342 Universities including 18 Central Universities, 211 State Universities, 95 deemed Universities and 5 institutions established under State Legislation and 13 Institutes of National Importance. There were 17625 colleges, of which 5386 have been recognized by the UGC under Section 2(f) and 12(B) of the UGC Act.

 In 2004-05, an estimated 104.81 lakh students were enrolled in the institutions of Higher Education as against 99.54 lakh in the previous year and the faculty strength was 4.71 lakh as compared to 4.57 lakh in the previous year.

OPEN UNIVERSITY SYSTEM

 

Through the open universities and distance learning initiatives, mechanisms are in place to upgrade skills at regular intervals and develop new competencies. People's needs of lifelong learning are constantly expanding. Higher education institutions are offering learning opportunities to satisfy these diverse demands. Ready access and flexibility are the hallmarks of these initiatives.

 

The Open University System was initiated in the country to augment opportunities for higher education as an instrument of democratising education and also to make it a lifelong process. In 1985, the central government established the Indira Gandhi National Open University (IGNOU).

 

Indian Gandhi National Open University

 

The IGNOU designed, developed and delivered high quality academic program. The University has currently -101 programmes comprising 900 courses to offer. Most of the University’s programmes are structured on modular pattern, leading to the award of certificates, diplomas and degrees.

 

The enrolment in the university has been rising rapidly. From less than 4,000 students in 1987, the enrolment rose to over 1,60,000 in 1998 and is currently about 13,11,145 The University has a vastly heterogeneous student body: demo-graphically diverse: educationally  dis-advantaged; and economically weak. Most of these students are in the lower rungs of their career looking for opportunities to improve their qualifications, professional competence and in acquiring new skills.

 

The University has demonstrated that modern communication technologies can be effectively harnessed in providing access to educational opportunities and that high technology need not necessarily be a high cost medium. The University has, at its inception, set up Audio-Video production facilities with the generous support provided by the Governments of UK and Japan. These facilities were substantially augmented with a major grant given by the Government of Japan.

 

EDUSAT the first Indian satellite built exclusively for serving the educational sector is a collaborative project of Ministry of Human Resource Development (MHRD), Indira Gandhi National Open University (IGNOU) and Department of Space Indian Space Research Organization (ISRO). It is mainly intended to meet the demand for an interactive satellite based distance education system for the country. It strongly reflects India’s commitment to use space technology for national development, especially for the development of the population in remote and rural locations.

 

For the delivery of various services to its students, the IGNOU has developed a nation-wide network of 48 Regional Centres 6 Sub-Regional Centres and over 1,271 Study Centres, all over India. The Study Centres and Work Centres are located generally with existing educational or training institutions that have made their facilities and services available to the IGNOU students.

FAKE UNIVERSITIES/ INSTITUTIONS

 

According to the University Grants Commission Act 1956, the right of conferring or granting degrees shall be exercised only by a University established or incorporated by or under a Central Act, or a State Act, or an Institution deemed to be University or an institution specially empowered by an Act of the Parliament to confer or grant degrees. The Act also provides that no institution, other than a University, established or incorporated by or under a Central Act, or a State Act shall be entitled to have the word ‘University’ associated with its name in any manner whatsoever. Under the Act, the contravention of its provision is punishable with fine. Apart from the fine prescribed, any attempt to cheat the public by offering unauthorized degrees by ineligible institutions would also attract the appropriate provisions of the criminal laws.

 To curb the functioning of the Fake Universities/Institutions and, to create awareness amongst the public and the students alike, the UGC issues Press Releases, at the beginning of each academic session, advising aspiring students not to pursue higher education courses with such institutions.

EDUCATION FOR SC/ST AND WOMEN

Under Non-Formal Education programmes, about 40% of the centers in states and 10% of the centers in UTs are exclusively for girls. As of 2000, about 0.3 million NFE centers were catering to about 7.42 million children, out of which about 0.12 million were exclusively for girls. In engineering, medical and other colleges, 30% of the seats have been reserved for women.

The Government has reserved seats for SC/STs in all areas of education. Special scholarships and other incentives are provided for SC/ST candidates. Many State Governments have completely waived fees for SC/ST students. Seats have been reserved for candidates belonging to Other Backward Classes as well in some states like Tamilnadu, Karnataka and Andhra Pradesh. The Department for the Welfare of SC/ST/OBC/Minorities introduced the SC/ST tuition-fee reimbursement scheme in 2003-2004. The scheme applies to SC and ST students who are enrolled in recognized unaided private schools and who have an annual family income of less than Rs. 1 lakh. It provides a 100% reimbursement of the tuition fees, sports fee, science fee, lab fee, admission fee and the co-curricular fee if the student's family income falls below Rs. 48, 000 per annum and a reimbursement of 75% if the family income is greater than Rs. 48, 000 per annum but less than Rs. 1 lakh. The subsidy provided by the scheme covers between 85% and 90% of the beneficiary's total running expenses in studying in a private school.

CRITICISM OF INDIAN EDUCATION SYSTEM

Modern education in India is often criticized for being based on rote learning. Emphasis is laid on passing examinations with high percentage. Very few institutes give importance to developing personality and creativity among students. Recently, the country has seen a rise in instances of student suicides due to low marks and failures, especially in metropolitan cities, even though such cases are very rare.

The presence of a number of education boards leads to non-uniformity. ICSE and CBSE boards are sometimes favorably considered at the time of admission, although it cannot be said with certainty that their syllabuses are harder. A large number of SSLC (State board) students therefore complain that their ICSE and CBSE counterparts are given an advantage during college admissions, which are extremely competitive and sought for. Most colleges though account for these differences during admissions. The syllabi prescribed by the various boards are accused of being archaic and some textbooks (mostly ones written for the SSC) contain many errors.

The boards are recently trying to improve quality of education by increasing percentage of practical and project marks. However, critics say even this is memorized by students. This is attributed to pressure from parents who are eager to see high scores more than overall development.

Many people also criticize the caste, language and religion-based reservations in education system. Many allege that very few of the weaker castes get the benefit of reservations and that forged caste certificates abound. Educational institutions also can seek religious minority (non-Hindu) or linguistic minority status. In some institutions, 50% of the seats are reserved for students belonging to a particular religion or having particular mother-tongue(s). In case of languages, an institution can declare itself linguistic minority only in states in which the language is not official language. Many students with poor marks manage to get admissions, while meritorious students are left out. Critics say that such reservations may eventually create rifts in the society.

The general corruption prevalent in India is also an issue in the Education system. Engineering, medical and other lucrative seats are sometimes sold for high prices and ridden with nepotism and power-play. Student politics is also a major issue, as many institutions are run by politicians. Ragging is also a major problem in colleges, many students die due to ragging every year. Some state governments have made ragging a criminal offence.

So now it is not only a responsibility of government to improve the situation but we all as citizens of India will have to come forward to provide everyone of this country quality education by education at least one person in our neighborhood. This is the best way to improve the literacy rate of India and provide quality education to one and all.  

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BIBLIOGRAPHY

• www.wakeupcall.org/china_india_comparision/china_india_comparision.php
• www.education.nic.in
• http://bowne.com/securitiesconnect/details.asp?storyID=1359
• http://www.worldbank.org.in
• http://drishtikona.com/archives/government_policyadministration/001669.php
• http://www.hindu.com/2007/10/17/stories/2007101754881700.htm
• http://www.indiastat.com/india/ShowData.asp?secid=105&ptid=18&level=2
• http://www.oophs.blogspot.com/2007/10/india-second-best-destination-for-fdi.html
• http://bundeep.blogspot.com/2007/04/ndia-and-china-fdi-behind-figures.html
• chennaionline.com/education/
• India 2007
• India infrastructure report
• India Today

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Telecom Sector in India

Prepared By:

Debashree Rout

Roll No. 0711075

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India is the fourth largest telecom market in Asia after China, Japan and South Korea. The Indian telecom network is the eighth largest in the world and the second largest among emerging economies. At current levels, telecom intensiveness of Indian economy measured as the ratio of telecom revenues to GDP is 2.1 percent as compared with over 2.8 percent in developed economies. Indian telecom sector has undergone a major process of transformation through significant policy reforms. The reforms began in 1980s with telecom equipment manufacturing being opened for private sector and were later followed by  and . India began deregulation of its market in 1994 and today it is one of the most deregulated telecom markets in the world. The liberalization of the industry has created an impressive forward-momentum in India, resulting in a vigorously competitive and fast growing sector. Moreover, the government had relaxed significantly the foreign investment norms in the sector.

Indian telecommunications today benefits from among the most enlightened regulation in the region and arguably in the world. The sector, sometimes, considered the “poster-boy for economic reforms” has been among the chief beneficiaries of the post-1991 liberalization. The Indian telecom market has been displaying sustained high growth rates. Riding on expectations of overall high economic growth and consequent rising income levels, it offers an unprecedented opportunity for foreign investment. The growth statistics of the sector combined with the Government's decision to increase the foreign direct investment (FDI) cap in the sector to 74 per cent has generated huge interest among global investors. The share of telecom in FDI rose from 3-4 per cent to 12-15 per cent in the calendar year 2006. TRAI has proposed that in view of the convergence of services, cable TV operators be allowed to increase their FDI cap from the existing 49 per cent to 74 per cent to bring them at par with the telecom sector.

One of the fastest growing sectors in the country, telecommunications has been zooming up the growth curve at a feverish pace in the past few years. A combination of factors is driving growth in the telecom market, promising rich returns on investments. The year 2007 saw India achieve the distinction of having the world's lowest call rates (2-3 US cents), the fastest growth in the number of subscribers (15.31 million in 4 months), the fastest sale of a million mobile phones (1 week), the world's cheapest mobile handset (US$ 17.2) and the world's most affordable colour phone (US$ 27.42). The sustained growth has been supported by progressive regulatory regime, strong demand for cellular services and in recent years, a strengthening economy. FY06 industry revenues were around Rs 86,700 crore, which represents an increase of 21% over the previous year. India's mobile industry is one of Asia's fastest growing mobile markets - with industry subscribers growing at a CAGR of over 90% per annum over the past five years. Growth momentum gathered pace in FY06 with net mobile additions surging from 5.2 million in Q106 to 14.2 million by Q406. This trend continued through FY06 with net additions exceeding 5-6 million per month by July 2006. As at September 2006, total telecom subscribers climbed to 170.3 million, representing a tele-density of 15.4%. Based on current rates of wireless growth, the government's target of 250 million telecom subscribers by end-2007 is looks certainly achievable. With the fixed-line and cellular operations in good stand and with recognition of the importance of internet penetration, the focus is now on broadband and internet connectivity which is on the verge of taking off. In fact, the year 2007 has been declared as “The Year of Broadband” in India.

India offers an unprecedented opportunity for telecom service operators, infrastructure vendors, manufacturers and associated services companies. Not to be left behind, Indian cellular operators have lined up investments of about US$ 20 billion over the next two years to bring over 80 per cent of the population under mobile coverage. The planned investment for the next couple of years is 50 per cent higher than what has been invested in the last 12 years. Dynamism in the services sector and changing consumer profile is enhancing growth in the telecom sector. India thus, represents a vast untapped potential for global major players.

Telecommunications in India were introduced in 1851 when the British Raj first laid telegraph lines near Calcutta. Later, in 1881, the telephone was invented by Graham Bell and British firms introduced what was then known as POTS (Plain Old Telephone Services) into the colony. By the time India achieved independence in 1947, the country had 321 telephone exchanges in urban areas with a tele-density of just about 0.25 phones per 1000 people.

Telecommunications has been a state subject since independence, especially till the mid 80s, when the government controlled all the aspects of the sector through the ministry of Posts and Telegraphs as a natural monopoly. Telephones continued to be looked upon more as a luxury than as an essential means of communication that could benefit business and administration. The result was a concentration of telephones around urban and metropolitan centres. Policy makers however, shifted their stand on telephones being a luxury rather than an essential infrastructural tool for efficient business and economic growth in the seventh 5 year plan (1985 to 1990). Thus began the real development of telecommunications in the country.

After a long and extended debate over the ineffective development of the telecommunication in the country, the Public Accounts Committee of the Lok Sabha recommended a complete overhaul of telecommunications and a long sought after reorganisation was undertaken in 1986 to split the public, postal and telecom operations into separate departments.

The growth of telecommunications in the real sense began with the late Prime Minister, Rajiv Gandhi initiating the liberalisation of the sector firstly by de-monopolizing telecom equipment manufacturing in 1985. This allowed private firms to manufacture telephones, while the Department of Telecommunications (DoT) licensed switching technology from various foreign firms. A simultaneous thrust was provided to the national development of telecommunications equipment by hiring non-resident Indian engineer, Satyen (Sam) Pitroda to start the Centre for Development of Telematics with the goal of designing an indigenous digital telecommunication switch, whose manufacture would be licensed to local firms.

The creation of the Department of Telecom (DoT) was followed by a proposal to change the organisation structure further by carving out the metropolitan areas into separate operating companies. However, one argument against the move was that this went against the planning goals to decongest urban areas and decentralize economic activity by issuing guidelines to place an embargo on new connections in urban areas. It was also felt that this would only exacerbate the pattern of lop-sided development by continuing to invest more in cities.

However, another interpretation of the DoT’s motives to create MTNL and VSNL could be the access these companies could provide to private capital, which it did not have and needed to supplement plan allocations. In 1986, according to the DoT annual report, two new public corporations, Mahanagar Telephone Nigam Limited (MTNL) and Videsh Sanchar Nigam Limited (VSNL) were set up to provide decision making autonomy and flexibility and allow public borrowings to supplement internal resources. MTNL was carved out of DoT and took over operations, maintenance and development of telecommunication services in New Delhi and Mumbai. VSNL was set up to plan, operate and develop international telecommunication services in India. DoT operated in almost all parts of the country and by virtue of its presence in a major part of the country and the wide-ranging policy making powers that it had, DoT emerged as near monopoly in the telecom sector prior to major reforms in the sector.

Then came in the second round of reforms wherein DoT was restructured to create a level playing field among private operators and the existing players. The service providing segment of DoT was split and called the Department of Telecom Services (DTS), which was later converted to a corporate entity and called Bharat Sanchar Nigam Limited (BSNL). This resulted in the division of duties in DoT as a service provider and a policy maker into two separate functions. Broadly, DoT is now responsible for policy making, licensing and promotion of private investments in both telecom equipment and manufacture and provision of telecom services. BSNL, a corporate body, is responsible for the provision of services.

Telecommunications in India have changed a lot since the initiation of liberalisation by the government from plain vanilla telephonic conversations to high-speed broad-band internet connections. This vast progress in the telecommunications sector has completely changed the lives of the people in the country and more so the way in which business is done today. The reforms in the telecommunications sector have been the most visible face of reforms in the country in the last couple of decades. Privatisations and the consequent competition in the sector have only added to the value that consumers derive from this industry, which is regarded as the backbone of modern business.

Conservative estimates put a tag of a 3% increase in the growth of GDP for every 1% rise in the tele-density in the nation. Accordingly, this sector has received a great thrust from the government for investments and development. This industry is highly capital-intensive, in the sense that the amount needed to start business in this industry is very high given the technologically advanced nature of the infrastructure needed to run it. The government’s effort at garnering public funding for this sector has remained largely constrained. The resource gap to meet telecom targets of the 8th Five Year Plan was as huge as Rs 23,000 crore. This huge gap between government funding and projected fund requirement to provide additional resources to achieve the nations telecom target was what prompted the government to liberalise the sector in 1992 inviting private participation in the sector. Among the larger sub-segments, cellular mobile services were the first to be opened up to private competition. In 1994, the government released its National Telecommunications Policy (NTP-94), which allowed private fixed operators to take part in the Indian market for the first time (cellular operators had been allowed into the four largest metropolitan centres in 1992). Under the government’s new policy, India was divided into 20 circles roughly corresponding to state boundaries, each of which would contain two fixed operators (including the incumbent), and two mobile operators.

The Indian market was considered to be very attractive given the low tele-density, the high latent demand and an ever-rising middle class. The result was the immense interest shown by global telecom players, foreign institutional investors and major Indian industrial houses in investing in the telecom sector, especially cellular telephony. However the euphoria over an emerging sector was short lived and the players in the segment began confronting with a series of problems that threatened their very viability and survival. The result was a massive dry up of foreign investment in the sector. One of the factors why this happened was that the liberalisation and de-regulation of the sector was done in a manner that was not compatible with global practices. As ground-breaking as NTP-94 was, its implementation was unfortunately marred by regulatory uncertainty and over-bidding. A number of operators were unable to live up to their profligate bids and, confronted with far less lucrative networks than they had supposed, pulled out of the country. As a result, competition in India’s telecom sector did not really become a reality until 1999.

In 1999, the Government of India authored a very forward looking National Telecom Policy 1999 (NTP-1999), which acknowledged that access to telecommunications is of utmost importance for the achievement of the country’s social and economic goals. Availability of affordable and effective communication for the citizens was the core vision and goal of this telecom policy. Since the announcement of the Policy, the Government has undertaken various concrete steps to achieve the policy objectives. The migration from a fixed to a revenue share licence regime of approximately 15% provided the desired relief to the private operators – earlier burdened by huge debts that they had to service owing to their licence fee commitments. This was the starting point of the cellular revolution being witnessed in the country today, wherein almost 2 million lines are getting added to the network every month.

An essential part of the entire game of privatisation is the setting up of tariffs in order to be beneficial for all the players. This task was entrusted by the government to a newly formed body for the purpose, the Telecom Regulatory Authority of India (TRAI). TRAI issued its first directive regarding tariff-setting following National Telecom Policy of 1999 aimed at re-balancing tariffs and to usher in an era of competitive and service provision. Subsequently, it conducted periodic reviews and made changes in the tariff levels. Today, TRAI plays a very important role of regulating the telecom market which consists of a large number of players with more than 250 licenses issued in various segments, which include, Basic telecom services, Cellular Telephony, Radio Paging, Data Networks, Voice Mails, E-mails and the Internet.

The telecom sector is not a small one and covers various services and many players within each service. One of the most vibrant developments in telecommunications has been Cellular telephony – a technology that gives us the power to communicate anytime and anywhere. This segment, a part of the broader telecommunications industry, has today spawned an entire industry in mobile telecommunications industry. Mobile phones today are an integral part of growth, success and economic efficiency of businesses. The government in India today recognizes, providing world-class telecommunications infrastructure as the key to rapid economic and social development of the country. Critical not only for the development of the information technology industry, its impact on the overall development of the economy is also widespread.

Foreign Direct Investment (FDI) was permitted in the telecom sector beginning with the telecom manufacturing segment in 1991 - when India embarked on economic liberalisation with current FDI limit being increased from 49 to 74%. Liberalisation of the national and international long distance sector by the Government led to the setting up of private companies in both service segments, and the consequent competition that has emerged has led to reduction in tariffs, which are lower than 80 per cent of the pre-liberalisation days. The reduced tariffs are now almost at par with world benchmarks. Recognising the convergence of markets and technologies, the Government, in December 2003, came out with the Unified Access Licence allowing both basic and cellular service providers to provide access, using any technology in a specified service area. The Government also announced the Interconnection Usage Charge (IUC) regime in January 2003, implemented from May 2003, to facilitate cost-oriented interconnection in the Indian telecom market with multiple operators - both public and private, with multiple service offerings. In tax related announcements made in January 2004, the Government has further rationalised the customs duty structure on imports related to telecom and specified infrastructure equipment for basic/cellular/Internet, V-SAT, radio paging and public mobile radio trunk services. Parts of such equipment are being exempted from basic customs duty. Later in the year, the Government announced reduction in performance bank guarantees for Internet service providers, national long distance providers and domestic call centres; thus, reducing their cost of operations to enable them to offer more affordable pricing.

The Telecom Market

Telecommunication services include Basic service, Cellular service, Internet Service Provider (ISP) and Very Small Aperture Terminal (VSAT) services. Government of India (GoI) introduced a unified license for all telecommunication services in India, and allowed full mobility to wireless in local loop (WLL) operators as a first step. At the end of 2003, India had a total of 70.5 million phones of which 42 million were landline and 28.2 million were mobiles. During 2003, 17.5 million mobile subscribers were added. While GSM operators added 11 million subscribers, the two main CDMA operators added 6.2 million subscribers. With the recent expansion, India had reached the tele-density target of 7 per hundred in 2003. The Unified Access licensing regime implemented in the year 2003, gave a major boost to this industry as it permitted basic and/or cellular mobile service using any technology. And today, India is one of the fastest growing markets for Global System for Mobile Communications (GSM) with its subscriber base increasing from 53mn in October 2005 to 96mn in October 2006.

 One of the fastest growing sectors in the country, telecommunications has been zooming up the growth curve at a feverish pace in the past few years with an addition of more than 6 million connections per month. India is the fourth largest telecom market in Asia after China, Japan and South Korea. The Indian telecom network is the eighth largest in the world and the second largest among emerging economies. At current levels, telecom intensiveness of Indian economy measured as the ratio of telecom revenues to GDP is 2.1 percent as compared with over 2.8 percent in developed economies (CRISIL, ). FDI inflow in Indian Telecom sector is one of the highest among all sectors. The year 2007 saw India achieve the distinction of having the world's lowest call rates (2-3 US cents), the fastest growth in the number of subscribers (15.31 million in 4 months), the fastest sale of a million mobile phones (1 week), the world's cheapest mobile handset (US$ 17.2) and the world's most affordable colour phone (US$ 27.42).

Telecom services are growing at an approximate rate of around 5 percent per year in terms of revenue and mere 10 % in terms of subscriber base in last five years. Partly the result is due to negative growth in NLD market (-14% Rs 51,410 million from Rs 59,880 million) and ILD market (-13% Rs 43,460 million from Rs 50,010 million) in 2003-04. Amongst telecom services, cellular services are the fastest growing, with CAGR of 40 percent over the past four years. Telecommunications Regulatory Authority of India (TRAI) expects that the total number of cellular connections would bypass the total number of fixed line connections. As of March 2004 the total mobile market had reached 31.4 million, of which 24.65 million subscribers are GSM and 6.75 million are CDMA (excluding BSNL and MTNL) and basic operator is 42.84 million. During the past three years, in terms of subscriber base telecommunications services have been growing at a CAGR of nearly 22%, owing largely to the rapid increase in cellular service subscribers.

Major Players

There are three types of players in telecom services:

• State owned companies (BSNL and MTNL)

• Private Indian owned companies (Reliance Infocomm, Tata Tele-services,)

• Foreign invested companies (Hutchison-Essar which is now Vodafone, Bharti Tele-Ventures, Escotel, Idea Cellular, Spice Communications, etc.)

Today, the telecommunications industry is a vast one with a large number of private players who are constantly bringing down the cost to consumers thereby making services more affordable and helping improve life in general and business in particular. On the Indian business scene are successful government owned institutions like MTNL and BSNL on the one hand, and even more successful and aggressive players like the Tata’s and Reliance on the other. Competition has just begun and is heating up everyday with either lowering of tariffs or introduction of newer and improved services to keep a larger share of the market.

Emerging Trends

Indian telecommunication firms added 5.19 million new subscribers in April 2007, taking the total user base above 212.02 million.

• Wireless service providers continued to dominate user growth by adding 5.15 million subscribers in April, while 40,000 new fixed-line users signed up.
• At 500 minutes a month, India has the highest monthly 'minutes of usage' (MOU) per subscriber in the Asia-Pacific region.
• India is emerging as a forerunner in using the cell phone as a tool to access the Internet, with one in every 11 people logging on to the web across the world through mobiles turning out to be an Indian.
• The country's telecom sector will see investments up to US$ 25 billion over the next five years, projects global consultancy firm Ernst & Young.
• India is expected to register handset production of over 51 million units in 2007 to record the highest growth in the Asia-Pacific region, according to technology research firm Gartner.
• India produced nearly 31 million mobile phones in 2006 worth about US$ 5 billion. The production of handsets is set to increase by 68 per cent in units and 65 per cent in value terms in 2007. By 2011, production volumes are expected to reach nearly 95 million units at a compound annual growth rate (CAGR) of 25 per cent.
• The retail market for mobile phones -- handsets, accessories and airtime -- is over US$ 15.6 billion and growing at the rate of 15-20 per cent.
• Massive infrastructure needs in India might provide a potential private equity role. A recent study by telecom regulator Telecom Regulatory Authority of India (TRAI) has estimated that the country will need about 350,000 telecom towers by 2010, as against 125,000 in 2007.
• With a CAGR of 46 per cent, India has emerged as the fastest growing market in the data centre-structured cabling market in the Asia Pacific region, according to Access Markets International (AMI) Partners, a US-based consultancy agency. The data centre structured cabling market is expected to grow from US$ 19 million in 2005 to US$ 125 million in 2010. The overall structure cabling market is expected to grow from US$ 127 million in 2005 to US$ 345 million by 2010 at a CAGR of 22 per cent.
• In May 2007, Indian GSM mobile phone service providers signed up 5.1 million customers, taking total users to 130.6 million, the Cellular Operators' Association of India said.
• The combined revenue of all operators from their mobile businesses would more than double to US$ 33.1 billion by 2010, from about US$ 12.8 billion in 2006.
• The total revenue of all telecom operators is also set to nearly double to US$ 43.6 billion in four years, from US$ 22.5 billion in 2006. The revenue share of mobile business would rise to 76 per cent in the same period, from 57 per cent currently. India, which is adding over six million mobile subscribers every month, has surpassed Russia to become the third largest mobile market in the world after China and the US. The total mobile subscriber base in the country is likely to reach 425 million by March 2010 with Bharti Airtel (GSM) and Reliance (CDMA and GSM) emerging as the top two mobile operators in terms of number of subscribers.

The Indian telecommunications industry has sustained impressive growth since the late nineties, supported by a progressive regulatory regime, strong demand for cellular services and in recent years, a strengthening economy. FY06 industry revenues are estimated at around Rs 86,700 crore, which represents an increase of 21% over the previous year. Boosted by subscriber growth at a CAGR of around 90% over the past five years, industry cellular revenues have registered robust growth and now account for over 40% of total telecom revenues. Most of this growth has been captured by four operators - Bharti Airtel Ltd, (Bharti, issuer default rating or IDR 'BB+'/Stable), Reliance Communications Ltd (RCL), Bharat Sanchar Nigam Ltd (BSNL) and Hutchison Essar Ltd (Hutch Essar), which collectively accounted for over 75% of industry mobile subscribers in FY06. Nonetheless, the cellular market remains highly fragmented and competitive, in view of the fact that there are around six operators in each of the country's 23 mobile circles. Whilst consolidation is ongoing, competition is expected to intensify during the current stage of rationalisation, given large foreign investments in regional players.

Although traditional wireline connections are in decline, the basic services segment continues to grow at a moderate pace, underpinned by healthy demand for CDMA-based fixed-wireless services. There has been relatively limited competition in this segment, which continues to be dominated by government-controlled incumbents, BSNL and Mahanagar Nigam Telephone Ltd (MTNL), although private operators are gradually building market share. Competition in national and international long-distance services (NLD and ILD) has also been limited thus far, but this is expected to change over the next year or so given the recent relaxation in licensing conditions.

Even as the growth story continues unabated, the industry's landscape is evolving rapidly with rising foreign interest in the country. In particular, the subcontinent has attracted strategic investments from Malaysian and Singaporean operators, who are looking outwards to offset decelerating growth in their own markets. The growth outlook remains robust across market segments, underpinned by low teledensity and supported by strong economic fundamentals. The focus area for Indian operators and foreign investors alike is the cellular space, where monthly net additions have snowballed over the last 12 to 18 months. Meanwhile, local access services are also in demand, although incremental growth is expected to come from CDMA-based fixed wireless services rather than traditional wireline. Prospects for Internet and broadband growth are also promising, although short-term retail growth will be constrained by low PC penetration and the absence of local loop unbundling (LLU). In segments where competition is currently limited, the regulator remains focused on lowering barriers to entry and enabling sustainable competition.

Burgeoning Mobile Telephony – Key Growth Driver

Opening up of international and domestic long distance cellular telephony services are growth drivers in the industry. Growth momentum gathered pace in FY06 with net mobile additions surging from 5.2 million in Q106 to 14.2 million by Q406. Most operators are exclusively GSM or CDMA operators; however BSNL, MTNL and RCL utilise both standards. The market is intensely competitive, with at least six operators in most circles. Though pan-India mobile penetration is still low at around 8%, penetration in the metros (which account for around a quarter of total industry subscribers), is higher, averaging around 33% in FY06. The focus of growth has now shifted to the B and C circles, where penetration is still largely in single figures.

The cellular market is expected to remain intensely competitive, especially as the pace of consolidation now appears to be slowing. Despite the entrenched positions and significant lead advantage of the pan-national operators, several regional players are keen to expand their footprints, some with the support of their new foreign partners. The second phase of consolidation may be delayed until cellular growth moderates - although further rationalisation is inevitable in the medium to long term. The industry has vaulted into a second capex cycle, more intense than the last and reflected in the unprecedented rise in industry-wide target outlays for FY07.

Growing Network Coverage is triggering Market Expansion

Contributions of the cellular industry to the Indian economy

• World Class Infrastructure
• The largest recipient of Foreign Direct Investment
• The Industry would have invested over Rs 25,000 crore in setting up 69 networks serving crores of subscribers with services being offered in over 1,575 cities and towns and covering over 14, 000 villages.
• Employment Generation

As number of licenses goes up and they start their operations with 77 networks on air, the employment opportunities in this sector will be huge. In addition to the direct employment generated by these networks, there is also the multiplier effect of indirect employment which will be generated down the supply chain comprising vendors, infrastructure suppliers, contractors, dealers, etc. Estimates have it that the total employment likely to be generated once the number of operators goes up and new networks fall in place would be in the range of lakhs.

• Increased FDI Flows The Telecom sector is the largest attractor of Foreign Direct Investment in the country, accounting for almost a fifth of FDI approvals since 1991.
• Heavy investment in Infrastruture The cellular industry is responsible for the single largest chunk of investment by any individual industry. The industry has already invested over Rs 20,000 crores and is expected to invest even more in the years to come.
• Revenue Generation for the Government of India The cellular telephony sector is poised for big growth going forward provided the government controls the sector and its players in a healthy manner.

Key Challenges Faced

• Despite the fact that India has the third largest telecommunications network among the emerging economies, penetration in both basic and cellular services is among one of the lowest in the Asian region. The main reason for this is the lack of adequate investments. Higher level of FDI flow is required as the total investment required as the total investment required is estimated to be more than $30 to $50 billion while India still struggling with a total FDI to close to $5 billion a year. More than FDI, implementing other issues like the unified licensing policy i.e., one license for offering all types of telecom services is critical. Additionally, as in all other industries, bureaucracy, corruption and lack of transparency within the government are all severe bottlenecks for the flow of incremental investments.

• With liberalisation catching up, the share of private sector has also been continuously growing to more than 50%, which is a positive issue.

• It is disturbing to view the latest survey conducted by the Telecom Regulatory Authority (TRAI) that less than 10% of the mobile telephone service providers (25% in case of fixed line telephone operators) provide quality services to the customer and 60% of them do not even provide the basic benchmarked quality of service. Frequent call drops and poor connectivity are major issues resulting from Network congestion, which are likely to get aggravated, unless measures are put in place in a timely manner, with millions of customers being added every month. Other critical issues that need to be addressed include unnecessary messages, telemarketing calls and the absence of a sound consumer redressal cell.

• A mandatory physical verification of all mobile users in the country has been ordered by the Department of Telecommunication (DoT) and the responsibility lies with the operators to complete this exercise. Due to the phenomenal increase in subscriber base, the operators are struggling to complete this exercise in a format satisfactory to DoT.

Opportunities

India offers an unprecedented opportunity for telecom service operators, infrastructure vendors, manufacturers and associated services companies. A host of factors are contributing to enlarged opportunities for growth and investment in telecom:

• an expanding Indian economy with increased focus on the services sector
• population mix moving favourably towards a younger age profile
• urbanisation with increasing incomes

Investors can look to capture the gains of the Indian telecom boom and diversify their operations outside developed economies that are marked by saturated telecom markets and lower GDP growth rates. Till recently, the industry believed that while the hike in Foreign Direct Investment (FDI) limits was necessary, it was not a sufficient condition for growth of the telecom sector. With most of the regulatory uncertainty getting over, there is heightened interest in Indian telecom. Further, at a time when global telecom majors are struggling to cope with their losses and the rollout of 3G networks, which has been a non-starter for close to a year now; India, with its telecom success story, represents an attractive and lucrative destination for investment. Inflow of FDI into India’s telecom sector between 1991 and 2003 was about US$ 2 billion. Also, 20 per cent of the approved FDI in the country is related to the telecom sector. Not to be left behind, Indian cellular operators have lined up investments of about US$ 20 billion over the next two years to bring over 80 per cent of the population under mobile coverage. The planned investment for the next couple of years is 50 per cent higher than what has been invested in the last 12 years.

Future Outlook

• Number portability is expected to be a reality soon, where a customer would be able to retain the number of his mobile phone even on moving over to a different service provider.

• Talking about value added services, a key driver to implement innovations in this industry is the strength of ‘telecom software solution’ providers who provide a wide range of innovative solutions, including technologies that lower costs, to service providers and handset manufacturers both, within the country as well as on a global basis. The telecom software market in India is on an upward swing and is being positioned as a niche competency for India. The rapid advancements in digital technology have facilitated mobile telephony development in a big way to position it as a virtual pocket-sized computer, combining the capabilities and features of a camera, music player and a personal digital assistant, all into a single unit.

• Third Generation Mobile Services (3G Services): An emerging technology that could provide a platform for enhanced value added services, the 3G services require allocation of spectrum and bandwidth to the operators. 3G Technology can deliver broadband-like data speeds to mobile devices which allow users to connect to the internet three times faster than traditional GSM format. The key contentious issues that still remain unresolved in this area include the bandwidth allocation to CDMA operators that would not create interference with the GSM operators and the level of entry fee to be paid by the operators.

• Mobile Gaming is another area witnessing quick growth in India, the market for which is estimated at more than $100 million. With the 3G-based networks, which offer higher bandwidth for faster internet and video downloads, soon in the offing, mobile gaming is slated for a large growth.

With the country’s working age population slating to reach 70% and given the increase in the upper middle-class disposable income, it is for sure that this sector is slated for massive growth. The growth will be faster and would be a less painful experience to both the operators and the users, provided the government further eases the regulatory restrictions and infrastructure constraints in a timely manner.

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1.  - The Indian Telecom Sector

2.  - Telecommunications

3.  - Telecom

4.  - Indian Telecom Sector

5.  - India Telecom Brief

6. Advanc’edge MBA – November 2006 ( The Telecom Sector)

7. Advanc’edge MBA – December 2005 (Telecom Sector in India)

9.  – Indian Telecom Sector: Sustainable growth ahead

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The Study on Hotel Industry

                                                                     

                                                         

Prepared by:

P .JYOTSANA SHREE

Roll No. 7011088

EXECUTIVE SUMMARY

Hotel Industry in India has witnessed tremendous boom in recent years. Hotel Industry is inextricably linked to the tourism industry and the growth in the Indian tourism industry has fuelled the growth of Indian hotel industry. This has largely been due to the 4.4 m tourist arrivals in FY07 (13% growth) over the previous period. The compounded growth in tourist inflow over the last ten years (FY97-FY07) has been 4.3%, while in the last five years, growth stands at 11.6% per annum. The hotel industry went through a rough patch between FY00 to FY04 owing to factors like the Asian financial crisis, Afghan war, Middle East unrest, September 11 attacks, SARS and domestic riots.

India occupies the forty-sixth position among the sixty tourist destinations in the world. The Globalisation and liberalisation gave it a new impetus. Also, to encourage the tourism sector, the government is planning to propose a conditional 10-year tax holiday for all tourism projects in the country. Companies will enjoy full tax exemption up to 50% of profits, but will qualify for tax benefits for the remaining amount only if they re-invest it in tourism projects. The Centre and States are also working out a PPP (Public-Private-Partnership) model to increase hotel capacity. Efforts to diversify tourist attractions by offering new products such as adventure tourism, wellness tourism, medical tourism and golf tourism are expected to have a positive effect on both foreign tourist arrivals and domestic tourism.

As per the 2004 findings, the total number of approved rooms by the Government of India stands at around 99,000 (estimated). These rooms are further classified into various segments out of which, Five star and Five star deluxe hotels account for around 27% of the total capacity, three star hotels (22%), four star (8%), two star (9%), one star and Heritage hotels (2% each) and the rest is divided between unclassified and unapproved hotels.

The five star hotel segment has grown the fastest during the last five years at a CAGR of 12%. Further this segment can be divided into 3 sub-segments namely Luxury, Business and Leisure. The growth in this segment indicates the genre of travelers coming into the country. Over the last few years the country has witnessed a large influx of business travelers in the country owing to relaxation of the government’s stand on Foreign Direct Investments (FDI) for most of the sectors in the country.

Latest investments:

India is getting another company investing in the tourism sector. UK based Dawnay Day group is injecting $200 million into the industry to build 10 hotels in Pune, Mumbai, Chennai, Hyderabad and New Delhi by 2010. This is the first step in an effort to build a total of 30 new hotels.

Another company that is getting into the tourism industry in India is the easyGroup, founded by Stelios Haji-Ioannou. easyHotel has formed a joint venture with Istithmar PJSC (an investment house based in the UAE). They are planning to build 8 budget hotels across India in the next four year. The alliance also has plans for the future with easyHotels opening in Pakistan, North Africa and the Middle East.

Key highlights:

• Rising income

• Open sky benefits

• New business opportunities

• Constraints:

            Poor support infrastructure

            Increasing competition

HOTEL INDUSTRY

Spreading over 3m square kilometres, India rises in the snowy peaks of Kashmir in the north, and falls to the tropical shores of Kerala’s southern tip. In the west the barren rocky deserts of Rajasthan provide an arid, hostile environment, while in Bengal to the east lush jungles create a haven for wildlife. India’s size and diversity is matched by very few countries. Dotted across this vast and breathtaking countryside are huge metropolises, swelling secondary cities and many thriving regional centres, over 40 cities with populations 1m strong, all with their own particular industries and economies.

Hotel Industry in India has witnessed tremendous boom in recent years. Hotel Industry is inextricably linked to the tourism industry and the growth in the Indian tourism industry has fuelled the growth of Indian hotel industry. The thriving economy and increased business opportunities in India have acted as a boon for Indian hotel industry. The arrival of low cost airlines and the associated price wars have given domestic tourists a host of options. The 'Incredible India' destination campaign and the recently launched 'Atithi Devo Bhavah' (ADB) campaign have also helped in the growth of domestic and international tourism and consequently the hotel industry.

In recent years government has taken several steps to boost travel & tourism which have benefited hotel industry in India. These include the abolishment of the inland air travel tax of 15%; reduction in excise duty on aviation turbine fuel to 8%; and removal of a number of restrictions on outbound chartered flights, including those relating to frequency and size of aircraft. The government's recent decision to treat convention centres as part of core infrastructure, allowing the government to provide critical funding for the large capital investment that may be required has also fuelled the demand for hotel rooms.

The opening up of the aviation industry in India has exciting opportunities for hotel industry as it relies on airlines to transport 80% of international arrivals. The government's decision to substantially upgrade 28 regional airports in smaller towns and privatization & expansion of Delhi and Mumbai airport will improve the business prospects of hotel industry in India. Substantial investments in tourism infrastructure are essential for Indian hotel industry to achieve its potential. The upgrading of national highways connecting various parts of India has opened new avenues for the development of budget hotels in India. Taking advantage of this opportunity Tata group and another hotel chain called 'Homotel' have entered this business segment.

According to a report, Hotel Industry in India currently has supply of 110,000 rooms and there is a shortage of 150,000 rooms fueling hotel room rates across India. According to estimates demand is going to exceed supply by at least 100% over the next 2 years. Five-star hotels in metro cities allot same room, more than once a day to different guests, receiving almost 24-hour rates from both guests against 6-8 hours usage. With demand-supply disparity, hotel rates in India are likely to rise by 25% annually and occupancy by 80%, over the next two years. This will affect the competitiveness of India as a cost-effective tourist destination. To overcome, this shortage Indian hotel industry is adding about 60,000 quality rooms, currently in different stages of planning and development, which should be ready by 2012. Hotel Industry in India is also set to get a fillip with Delhi hosting 2010 Commonwealth Games. Government has approved 300 hotel projects, nearly half of which are in the luxury range. The future scenario of Indian hotel industry looks extremely rosy. It is expected that the budget and mid-market hotel segment will witness huge growth and expansion while the luxury segment will continue to perform extremely well over the next few years.

Market Overview

Table 1 Citywide Occupancy

With an exception of Delhi and Hyderabad, all other markets continue to reflect an upward trend and show growth in occupancies. Occupancy growth has been strongest for Chennai (6.0%) followed by Mumbai and Goa (5.0%). The average occupancy for Bangalore was up by 3.0% from 79.0% to 82.0%, while the Jaipur market registered a growth of 4.0% for 2006-07. The occupancy or Kolkata was unchanged at 77.0%. The sequential growth in occupancies has been relatively flat as compared to the pervious two years. The flattening of the growth curve can be attributed to the fact that the markets are now growing on a substantially higher base. Over the last one year hotels are seen as firmly adopting a rate vis-à-vis occupancy strategy and the focus in clearly shifting to revenue enhancement at stabilised occupancy levels. Another important development over the last year in most commercial markets has been the quantum of unaccommodated demand. The rapid emergence of stand alone boutique hotels that offer quality accommodation at reasonable prices can be attributed to unaccommodated demand.

Table  2    Citywide Average Rates

 

Here Table 2 presents average rates for key cities from 1997-98 to 2006-07. Demand in most commercial markets is now generated through the services sector as opposed to manufacturing based demand a few years ago. This shift has further enhanced the propensity of the market to support higher rates and improved the average length of stay patterns. The demand supply mismatch is still acute and therefore the rates will continue to rise, at least in the short term. While there has been some rise in operating costs of hotel, especially payroll, administration and general expenses, the incremental revenues have contributed to better bottom lines of most operating hotels.

Table 3: Key Operating Characteristics by Major City – Occupancy

Table 3 illustrates hotel occupancy  for ten key cities in India, between 2004/05 and 2006/07. In 2006/07, the two Leisure markets of Goa and Agra saw the highest occupancy growth at 8.4% and 4.5% respectively, followed by marginal increases in Mumbai (3.3%), Jaipur and Kolkata (0.9%) and Ahmedabad (0.7%). As stated earlier, all major cities like Delhi, Bangalore, Hyderabad and Chennai saw declines in occupancy. However, in the previous year (2005/06), Hyderabad and Delhi year logged 80% plus occupancies. Hyderabad saw two new hotels commence operations during this period; Delhi, in fact, saw supply being sucked out of the market due to renovations. The acute shortage of rooms is

increasingly being filled by standalone hotels and a fast growing unorganised serviced apartments segment in not only Delhi and Hyderabad but also in Bangalore, Pune and Chennai. The aforementioned cities have limited scope for further growth in occupancy in the immediate future, because of weekend seasonality, which remains relatively weak. The high average rates have started to play a serious deterrent to travelers and the rates often do not match up to service quality levels.

Here there is an overview on overall performance of hotels and Average Room Rates in metropolises in India.

Hotel performance for gateway cities in India - twelve months to March 2007

Source: HotelBenchmark™ Survey by Deloitte

Average rooms rates across India’s gateway cities March 2006-March 2007

Source: HotelBenchmark™ Survey by Deloitte

…Or a bright future? 

To maintain such growth, India’s economy needs to continue its boom and the government continue to invest in the country’s infrastructure. There seems no reason why, with India’s wealth of resources and skilled labour, the economy cannot continue to grow at speed. With a booming IT sector, India is ideally placed to thrive in the 21st century. However justification of such high average room rates can be found only in world-class facilities and back-up services for the business traveller. If the logistics of travel itself are troublesome, business people may be dissuaded from travelling to India. As India’s cities attract increasing numbers of visitors, the surrounding services need to be improved.

However with the increasing supply of air travel it is becoming easy to travel around this vast, spectacular land. Whether you enter by the north, south, east or west - through Delhi, Chennai, Kolkata or Mumbai – India is now becoming more accessible. As urbanisation increases, from sprawling gateway metropolises, to the rapid-rising secondary cities, and small but swelling regional cities, the need for hotel rooms will keep pace. International chains have realised this great opportunity, and even although average room rates cannot continue to climb as steeply in future years as was seen in 2006-07, a large increase in supply will compensate for this. Growth is growth in any form.

Airport Infrastructure Overview

The total air passenger traffic in India has shown an increase of 31.4% in 2006/07 as compared to that handled in 2005/06. The main reason for higher growth in traffic is due to the contribution of low-cost airlines. With more players entering this segment and the ongoing consolidation, the outlook for the Aviation sector is positive. Jet Airways, after acquiring Air Sahara in April 2007, has repositioned the latter as a niche player between lowcost and full-service airlines, under the new brand name JetLite. Furthermore, Kingfisher Airlines has taken up a stake in Air Deccan and the alliance intends to create an independent company where charter operations - a fast-emerging segment with high potential – of both the companies will be merged. Kingfisher Airlines also aims at using this ally to fly abroad in case the government does not relax the five-year domestic  operation norm for Indian carriers. Low fare airlines, namely, Air Deccan, SpiceJet and GoAir andother existing airlines have increased their frequency of operations in the existing domestic sectors and started flights to new sectors also. New low fare airlines namely IndiGo and Indus Air have also started operations in 2006/07. Cumulatively, all the players in this sector have contributed significantly towards domestic air passenger traffic showing an increase by 38.5% in 2006/07 as compared to 2005/06. International passenger traffic registered an increase of 15.1% in the same period. Private airlines accounted for 80.7% of the total domestic traffic with low fare airlines accounting for 29.7%.

According to recent estimates of the World Travel & Tourism Council (as of early 2005), Indian tourism demand will grow at 8.8% over the next ten years, which would place the country as the second most rapidly growing tourism market in the world. With the Indian hotel industry capturing the attention of the world, let us understand its strengths, weaknesses, opportunities and threats.

Strengths

India’s rich culture heritage: With a historical backdrop of 5,000 years, India is one big package of culture and legend that never fails to captivate the imagination of the visitor. Along with endless natural splendors like the mighty Himalayas, the vast Indo Gangetic Plains, lush tropical jungles and a long coastline. A visit to the country is a changing spectacle of religions, customs, festivals, sights and sounds.

Demand–supply gap: Indian hotel industry is currently facing a mismatch between the demand and supply of rooms leading to higher room rates and occupancy levels. With 95,000 odd rooms in the country, the size of the hotel industry represents an abysmal figure for India's size and growth prospects. Though new capacities are expected to come in the next five years demand will outpace supply in the short to medium term. The table below highlights that, over the last 24 months, major cities in the country have witnessed impressive growth in average room rates, due to strong demand and not much addition to supply.

ARRs: Average growth rate

source HVS international

Government support: Till a few years ago, the Indian government had a total apathy towards promotion of tourism. In fact, the industry did not find a place in the government’s fund allocation. Things have, however, witnessed a change. The government seems to have realized the importance of tourism and is willing to spend towards the development of the industry. The ‘Incredible India’ campaign is a product of this realization. The focus on infrastructure, modernisation of airports, open sky policy, development of new tourist destinations and circuits, more fund allocation towards tourism are some of the initiatives taken by the government to promote tourism. The Indian hotel industry stands to gain from this proactiveness shown by the government.

Weaknesses

Poor support infrastructure: India is currently spending a miniscule amount compared with its needs, on infrastructure. China is spending seven times as much as India on infrastructure (excluding real estate) in absolute terms. In 2003, total capital spending on electricity, roads, airports, seaports and telecom was US$150 bn in China (10.6% of GDP) compared with US$21 bn in India (3.5% of GDP). However, over the past 2-3 years, the government has realized the importance of infrastructure and has focused on improving it.

Opportunities

Rising Income: While there has been much talk about record number of foreign tourist arrivals, very little has actually been said or done about domestic tourism, which, according to our estimates, has registered a 40% annual growth in the last three years and is currently estimated at 300 m travelers. Per capita income grew by an impressive 7.1% in 2005, while Gross Domestic Savings touched an all time high of 28%. Significantly, the present-day consumption boom in India has been influenced more by higher disposable income rather than lower savings. This is good news, as income induced spending is likely to sustain itself for a longer period. Higher disposable incomes are also expected to enhance the concept of travelling for leisure.

Also, there has been an overall transformation in consumption pattern in the last five years. The increase in number of young people, their rising aspiration levels, and an increase in their spending power has led to a change in the consumption pattern. There is a marked shift from spending on traditional categories like food and grocery, clothing and jewelry, to lifestyle categories such as leisure, and aspirational products and services.

Open sky benefits: The opening up of the aviation industry in India brings exciting opportunities for the hotel industry (airlines transport around 80% of international tourists). Increased airline activity has stimulated demand and has helped to improve India's troubled infrastructure. Increased competition among airline companies will further lead to the development of new and improved services. Also the open skies policy has benefited both international and domestic travel.

New business opportunities: We believe that, over the next three to five years, the biggest surge in accommodation demand is expected to come from commercial zones that are being developed in metro suburbs and secondary markets. Mixed-use development projects that include retail and commercial space have also gained momentum in the last 24 months and will continue to be an attractive option. This provides a unique opportunity for hospitality projects. Also the new concept, which is going to gain importance is that of budget hotels (started by Indian Hotels – Ginger, the erstwhile Indione). Due to their inherent nature of operation, associated costs and flexibility, budget hotels will be better suited to withstand the next economic downturn as and when it takes place.

Threats

Event risk: Dependency on foreign tourism can be a double-edged sword as travel decisions are based on global patterns and events that happen elsewhere can have serious impact the performance. Events like 9/11, SARS outbreak and Afghanistan and Iraq wars have severely impacted the tourism industry in the past and the threat remains.

Increasing competition: Global hospitality majors like the Four Seasons, Shangri-La and Aman Resorts are all making their entry into the Indian market. They are not the only ones who are turning their attention to India. The Hilton Group is deciding on a comeback and has tied up with the Oberoi Group. Two other groups - the Carlson Group and the Marriott chain are furiously hunting for new hotels in India's top cities. This will increase the competition for the existing Indian hotel majors.

Conclusion
The outlook for the hospitality market in India is optimistic and will continue to remain so, in our opinion. The economy’s buoyancy, initiatives to improve infrastructure, growth in the aviation and real estate sectors and easing of restrictions on foreign investment will fuel demand for hotels across star categories in the majority of markets. India’s hotel industry is increasingly being viewed as investment-worthy, both within the country and outside, and several international chains are keen to establish or enhance their presence here. We anticipate that, over the next three to five years, India will emerge as one of the world’s fastest growing tourism markets and will be hard to ignore.

Growth prospects & Opportunities

For investment purposes Mumbai clearly remains our favorite destination, as the city continues to have a limited supply entering the market compared to our estimates on the demand side. The city is the commercial capital of India and we expect demand to remain exceptionally strong across all segments in this market. While good locations could afford a luxury or a first class hotel we also see an opportunity to do large format mid-market or budget hotels in this city. The NCR, while expecting a lot of new supply due to the Commonwealth games in 2010, remains a good choice in many locations provided you enter the correct niche segment. Developers, however, need to be careful not to be swayed by the Games alone but to see the longterm viability of hotel projects.

Another opportunity is in the Leisure space. India is certainly ready for family destination resorts built to international standards. These could be done both near eastern and western coastlines or within short distances to major cities. It is important that these destinations be built to international standards and offer value for money to the families they target.

The economy’s buoyancy, initiatives to improve infrastructure, growth in the aviation and real estate sectors, and easing of restrictions on foreign investment, will fuel demand for hotels across star categories in the majority of markets. However, investment risks will remain. Therefore, a wise strategy would be to carefully observe the progress of projects under development in various cities, see how infrastructure is changing and the likely local impact on a project. Equally important would be the segment an investor chooses to enter. Just because a site is available for a first class hotel does not mean that it would be the best investment decision for that particular site. A first class hotel on top of a shopping mall with a crowded car parking below may not be a best option for a typical first class guest traveler as s/he could decide to drive a slight distance and stay further away. Alternatively a budget hotel may be a better option as it may be more acceptable, save the additional FSI for perhaps increased retail / commercial space. We anticipate that over the next five to six years India will remain as one of the world’s fastest growing tourism markets and the economy will also be hard to ignore.

Latest business events & Investments

• A number of global players are already well established in India. These include Hilton, Shangri-La, Radisson, Mariott, Meridien, Sheraton, Hyatt, Holiday Inn,  InterContinental and Crowne Plaza.

• The boom has attracted several global players, ranging from Starwood and Mariott to Four Seasons and ShangriLa. The largest hotel company in the world,French chain Accor, has entered India and is now devising aggressive plans for expansion in the market. Several others are racing to increase their presence in India, including the Marriott group.

• Private equity firm Warburg Pincus has picked up around 27 % stake in Delhi-based mid-price hotel chain,Lemon Tree, for $ 60.2 million.

• The country has been flooded by some of the world's leading hotel brands. New brands such as Amanda, Satinwoods, Banana Tree, Hampton Inns, Scandium By Hilt and Mandarin Oriental are planning to enter the Indian hospitality industry in joint ventures with domestic hotel majors.

• Unitech, which is setting up two hotels in Delhi,has already formed a joint venture with Marriott International to run its three new hotels in India, which are expected to start operations by 2008 located in Kolkata, Gurgaon, Noida investing around 700 crore rupees

• The movement is not one-way. Cash-rich Indian hotel companies have been acquiring properties overseas. The Tata group's Indian Hotels Company is in the process of acquiring Boston-based luxury hotel the Ritz-Carlton for around $170 million dollars (around 765 crore rupees). Due diligence is likely to be completed soon. The hotel will be acquired through the company’s New York-based subsidiary, says RK Krishna Kumar, vice chairman of Indian Hotels.

• Indian Hotels is looking to strengthen its presence in the United States with this acquisition. It has also set up properties in the Middle East, the United Kingdom and Africa. Its fierce rival, Oberoi group, has also been active overseas with properties in Saudi Arabia, Mauritius, Egypt, Australia and Indonesia, and elsewhere.

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BIBLIOGRAPHY

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The Study on Indian Media and Entertainment Industry

---Unravelling the potential

Entertainment in its broadest sense has become a necessity rather than a luxury in the life ... Walt Disney

   

                                                                    Prepared by                                                                        NAMRATA VORA

                                                   Roll No. 7011084

                                                        

“For development to become a national obsession, the tyranny of bureaucracy and stranglehold of corruption has to end….

…How long will we remain content celebrating our potential even as we restrain ourselves from realising it?”

Manmohan Singh

“Towards a Creative and Daring India”

in 30th Anniversary issue of India Today

The global television industry is facing the most crucial and dynamic stage in its evolution. New television technologies are changing the stakes in each facet of the industry, both domestically and worldwide. Newer distribution technologies such as direct broadcast satellites (DBS), video cassette recorders (VCRs) and cable are in heavy competition with over-the-air broadcasting for audiences of over 600 million television viewers worldwide.

The Indian entertainment and media (E&M) industry has out-performed the Indian economy and is one of the fastest growing sectors in India. Above that, consumer spending is also on the rise, due to a sustained increase in disposable incomes, brought about by reduction in personal income tax over the last decade. All these factors have given an impetus to the E&M industry and are likely to contribute to the growth of this industry in the future.

The Indian M&E industry grew from Rs 35,300 crores to Rs 43,700 crores during the year 2005-06. The global M&E industry in 2006 was USD1.52 trillion and grew by 7.8% over 2005. The M&E industry registered a CAGR of 6.76% from 2002 to 2006. The liberalization of the media sector has opened up the gates of opportunities and growth.

India is emerging as a global destination for the M&E players because of the following reasons:

• The number of channels is increasing each day.
• India is emerging as one of the world's largest markets for digital and mobile music.
• Entry of private sector companies and increasing FDI and FII.
• The concept of crossover movies and crossover audience is also gaining momentum.
• The Indian M&E industry is also making its presence felt in the global market with its movies and music.
• India's large pool of creative skills and growing domestic market for animation and special effects industry.

Besides the economic and personal income-linked factors, there are a host of other factors that are contributing to this high growth rate. Some of these are enumerated below:

1. Low media penetration in lower socio-economic classes
2. Low ad spends
3. Liberalising foreign investment regime

Key developments

1. Entry of new players

The year 2005 saw the entry of new players across all segments of the E&M industry. The most prominent entry was that of the Reliance Group in the filmed entertainment and radio segment.

2. Foreign investment

Owing to the strong impetus for growth from the economic and demographic factors coupled with some regulatory corrections, the sector also recently witnessed increasing foreign investment inflows in most segments of the E&M industry, especially the print media.

Current status of the industry and its growth potential

The Indian economy continues to perform strongly and one of the key sectors that benefits from this fast economic growth is the E&M industry. This is because the E&M industry is a cyclical industry that grows faster when the economy is expanding. The size of E&M in India is currently estimated at INR 353 billion and is expected to grow at a compounded annual growth rate of 19 percent over the next five years.

Key growth drivers

• Television
• Filmed entertainment
• Print media
• Radio
• Music
• Live entertainment
• Out-of-home advertising
• Internet advertising

Piracy and violation of intellectual property rights have posed a major threat to the M&E companies worldwide. Lack of quality content has also become a major area of concern for the M&E companies in India.

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The Indian Media and Entertainment sector is poised to enter a golden era. One of the largest markets in the world, the industry is seeing strong growth and has the potential to garner US$ 200 billion by 2015. The eighth PricewaterhouseCoopers Global Entertainment and Media Outlook has ranked India as the fastest growing market in the world for spends in entertainment and media in the next five years. India will be one of the key drivers in pushing the global entertainment and media industry to US$ 2 trillion by 2011. With a compound annual growth rate (CAGR) of 18.5 per cent, the Indian entertainment and media industry is the fastest growing in the Asia-Pacific, says the study.

Another report by PricewaterhouseCoopers shows that revenues across the Indian media and entertainment segment grew by 20 per cent in 2006 to US$ 9.71 billion and the country’s overall advertising spending grew by 23 per cent to US$ 3.62 billion. International media giants are all vying for a stake in the segment. In the last three years, US$ 88 million of foreign direct investment (FDI) has flowed into the sector and in 2006, 13 FDI proposals were approved by the Government.

1. Low media penetration in lower socio-economic classes (SEC): Media penetration varies across socio-economic classes. Though media penetration is poor in lower socio-economic classes, the absolute numbers are much higher for these classes. Hence, efforts to increase the penetration even slightly in these lower socio-economic classes are likely to deliver much higher results, simply due to the higher base.

Source: IRS 2005, Round 2 as quoted in Jagran Prakashan Prospectus filed with SEBI dated February 3rd, 2006

2. Low ad spends: Indian advertising spends as a percentage of gross domestic product (GDP) – at 0.34 percent – is abysmally low, as opposed to other developed and developing countries. Advertising revenues are vital for the growth of this industry. While today the low ad spends may seem like a challenge before the E&M industry, it also throws open immense potential for growth. This potential can be estimated by the fact that even if India was to reach the global average, the advertising revenues would at least double the current advertising revenues, estimated at about INR 132 billion, for 2005.

Source: Advertising Expenditure Forecasts October 2004 by Zenith Optimedia as quoted in Entertainment Network Limited Draft Red Herring Prospectus filed with SEBI on November 11, 2005

3. Liberalising foreign investment regime: Today, India has probably one of the most liberal investment regimes amongst the emerging economies with a conducive foreign direct investment (FDI) environment. The E&M industry has significantly benefited from this liberal regime and most segments of the E&M industry today allow foreign investment. Recently FDI was permitted in the two important sectors – print media and radio. Films, television and other segments are already open to foreign investment.

In the print media segment, 100 percent FDI is now allowed for non-news publications and 26 percent FDI is allowed for news publications.  

The FM radio sector too was opened for foreign investment recently with 20 percent FDI being allowed. The FM radio sector itself has expanded by opening 338 licenses for private investment, which currently is underway. As a result, the radio sector is expanding rapidly with forecasted growth rates of 32 percent per annum.

Entry of new players:

The year 2005 saw the entry of new players across all segments of the E&M industry. The most prominent entry was that of the Reliance Group in the filmed entertainment and radio segment. During 2005, Reliance Capital bought a majority stake in Adlabs which enabled it to have a presence across the entire value chain of the filmed entertainment segment ranging from film production, exhibition and distribution. Through Adlabs, Reliance also made its entry into the radio segment by bidding for over 50 FM radio stations across the country with aggregate bids of over INR 1.5 billion.

The other significant entry into the entertainment and media segment was that of the Tata group, through its subsidiary Videsh Sanchar Nigam Limited (VSNL). VSNL tied up with the Paris-based Thomson Group in 2005 with the objective of identifying opportunities in managing and delivering content for third parties, including broadcasters and content providers.

Foreign investment

Owing to the strong impetus for growth from the economic and demographic factors coupled with some regulatory corrections, the sector also recently witnessed increasing foreign investment inflows in most segments of the E&M industry, especially the print media. Recent examples include foreign investment in English dailies such as Hindustan Times and Business Standard by Henderson Global and Financial Times respectively. Vernacular media too saw its share of foreign investment with a strategic equity investment by Independent News & Media in Dainik Jagran, a leading Hindi Daily.

2006 saw the maximum flow of foreign investment in the E&M industry. As many as 13 proposals for FDI in media were cleared by the information and broadcasting ministry in 2006 itself, and the ministry was examining another 22 proposals for clearance. Interestingly, news and current affairs and not entertainment dominated the field with eight proposals. Over the last three years, the E&M industry has secured foreign investment of over Rs 4 billion.

The Indian economy continues to perform strongly and one of the key sectors that benefits from this fast economic growth is the E&M industry. This is because the E&M industry is a cyclical industry that grows faster when the economy is expanding. It also grows faster than the nominal GDP during all phases of economic activity due to its income elasticity wherein when incomes rise, more resources get spent on leisure and entertainment and less on necessities. Further, consumption spending itself is increasing due to rising disposable incomes on account of sustained growth in income levels, and this also builds the case for a strong bullish growth in the sector.

The size of E&M in India is currently estimated at INR 353 billion and is expected to grow at a compounded annual growth rate of 19 percent over the next five years. The television industry continues to dominate the E&M industry by garnering a share of over 42 percent, which is expected to increase by a further 9 percent to reach about 51 percent. The share of the film industry, which currently stands at 19 percent, is not expected to change materially over the next five years. Print media, which stands at over 31 percent, is projected to lose some of its share in favor of the emerging segments.

Television

Subscription revenues are projected to be the key growth driver for the Indian television industry over the next five years. Subscription revenues will increase both from the number of pay TV homes as well as increased subscription rates. The buoyancy of the Indian economy will drive the homes, both in rural and urban (second TV set homes) areas to buy televisions and subscribe for the pay services. New distribution platforms like DTH and IPTV will only increase the subscriber base and push up the subscription revenues. The Indian television subscription market is currently estimated at about US$ 1.6 bn. The turnover of the industry is projected to grow by 22 per cent to Rs 51,900 crore by 2011 from the current size of Rs 19,100 crore.

Filmed entertainment

Advancements in technology are helping the Indian film industry in all the spheres of film production, film exhibition and marketing. There is now greater corporatisation in the industry, highlighted by public issues of several film productions, distribution and exhibition companies, long term contracts between film production companies and directors/actors and the fact that more than half the releases in 2006 were by corporates rather than individuals. More theatres across the country are getting upgraded to multiplexes and initiatives to set up more digital cinema halls in the country are already underway. The Home Video sector of the industry is also poised for steady cumulative growth of 31 per cent.

Print media

The print media industry will register 13 per cent growth to reach Rs 23,200 crore from the current size of Rs 12,800 crore by 2011. While currently the print media reaches 222 million people, it has the potential to reach another 369 million literate people. Also, print media is the favorite segment for global investors which will further help the segment grow. A booming Indian economy, growing need for content and government initiatives that have opened up the sector to foreign investment are driving growth in the print media. However it is expected that this sector will continue to lose share in the total E&M adspend (like in the past). In FY04, print media’s market size was estimated at Rs 97,800 m and is growing at a healthy 20% per annum.

Radio

Advertising revenue in radio industry is expected to grow by 28 per cent annually to reach Rs 1,700 crore by 2011. Currently radio generates advertising revenue of Rs 500 crore. The growth is fuelled by the expansion of private FM radio companies. In 2005, the government opened up the sector to foreign investment – and this is the key factor that will drive growth in this sector. As many as 338 licences are being given out by the Indian government for FM radio channels in 91 big and small towns and cities. In FY04, size of the Indian radio industry was Rs 2,400 m, which has increased to Rs 3,700mn by the CY06. Around 25% growth in revenues is a possibility over the next three to five years. New concepts like satellite, internet and community radio have also begun to hit the market. Increasingly, radio is making a comeback in the lifestyles of Indians.

Music

The industry has been plagued by piracy and had been showing very sluggish growth over the last few years, both in India and globally. However, ‘mobile music’ and ‘licensed digital distribution’ services are projected to fuel the recovery of the music industry the world-over. The pace of growth in mobile music reflects the fact that consumers increasingly view their wireless device as an entertainment medium, using those devices to play games and listen to music, while carriers are actively promoting ancillary services such as ringtones to boost average revenue per user.

Some 588.2 million album units sold last year, down 4.9%, while consumers purchased 581.9 million digital tracks -- a 65% increase from 2005's 352.7 million sold. Nielsen SoundScan, which released the figures Thursday, counts a block of 10 tracks sold as an album.

Live entertainment

This segment of the entertainment industry, also known as event management, is growing at a fast and steady rate. Live entertainment segment is estimated to grow by 16 per cent from Rs 900 crore to Rs 1,900 crore. In fact, event managers are also developing properties around events. The growing number of corporate awards, television and sports events is helping this sector. However, issues like high entertainment taxes in certain states, lack of world-class infrastructure and the unorganized nature of most event management companies, continue to somewhat check the potential growth in this segment of the industry.

Out-of-home advertising

Out-of-home advertising is estimated to grow by 17 per cent from Rs 1,000 crore to Rs 2,150 crore. Outdoor media sites in India are predominantly owned or operated by small, local players and are typically, directly marketed by them to advertisers and advertising agencies. However, this segment too is witnessing a sea-change with technological innovations. Growing billboard advertising is fuelled by technologies such as light-emitting diode (LED) video billboard.

Internet advertising

Though the internet media has a small base, it is expected to show the highest compounded annual growth rate of 43 per cent to reach Rs 950 crore in 2011 from Rs 160 crore now. The projections on Internet media is based on the growth of advertising revenue on the Internet media. More than 35 million internet users by 2008 will help advertisers spend more on Internet, the report said. An estimated 28 million Indians are currently hooked on to the internet. And this rising number is leading to the growth of internet advertising, which today stands at approximately INR 1 billion. The internet is being used for a variety of reasons, besides work, such as chatting, leisure, doing transactions, writing blogs etc. This offers a huge opportunity to marketers to sell their products. And with broadband becoming increasingly popular, this segment is expected to grow by leaps and bounds.

Advertisement Spends 

The Indian advertising spends showed exponential growth in 2006 growing over 23 per cent over last year’s spends to Rs 163 billion as compared to a growth of 14 per cent. Advertising revenues are vital for the growth of this industry.

Growing at an annual rate of 15.6 per cent, the media and entertainment industry will double its revenues from Rs 36,100 crore in 2005 to Rs 74,400 crore by 2010, according to a Crisil report.

Better technologies: Acceptability of DTH (Direct-To-Home) will curb the menace of under-declaration of subscribers by cable operators. Subscribers will then pay for only the channels of their choice.

Going great guns: The strong economic growth has led to a rise in the overall income levels of Indian consumers. With the availability of higher disposable income, proportionately a higher amount is being spent on products and services related to the entertainment and leisure segment.

Television at the forefront: Within the entertainment sector, television has taken the lead with cable and satellite television segment propelling the growth of the sector. Also, there is a significant transformation happening within the sector with content creators venturing into broadcasting and post-production.

Helping hand: Support from the government has also aided the growth of the industry. The government has liberalised the up-linking policy and reduced the rate of basic customs duties on import of certain specified equipments for setting up an earth station to aid broadcasting from India. Further, abolishing of excise duties to fight music piracy is also another positive gesture from the government.

Greater choices: Emergence and acceptance of new entertainment avenues like movie multiplexes and radio have provided consumers with greater choices, which will aid the growth of the sector going forward.

Widening ad base: FMCG companies, which have been key contributors to the total ad-spend of the industry, are increasingly concentrating towards rural markets. Broadcasters are launching regional channels to cater to a vast semi-urban/ rural population. Moreover, with new sectors opening up like telecom, healthcare and insurance, advertisements by these segments would also aid the adspend growth across media segments.

Piracy menace: With the absence of any strict laws targeted at curbing piracy (films/music) in the country, significant revenues are getting lost to the unorganised sector. Piracy to the tune of Rs 2,500 crore annually is pulling back the growth of the music industry, the report said. Music industry will grow only by four per cent from Rs 720 crore currently to Rs 870 crore in next four years.

Increasing competition: Competition in the industry has been gathering steam, not just between different segments of the media and entertainment industry but also within the segments itself. This could lead to burgeoning costs of production for media companies in the form of higher compensation in order to retain talent and acquire properties/rights. Increasing number of options for advertisers to showcase their products and services could also cap the potential upside in ad realisations.

Subscriber under-declaration: The revenue model for the cable and satellite companies is still skewed in favor of cable companies. Cable operators are in a commanding position. However, this industry is likely to face consolidation with Multi System Operators (MSOs) like Incablenet, Siticable, Asianet, Hathway Cable and Datacom buying over the small local cable operators (LCOs) and setting up their integrated network.

A lot more investment can be drawn into the entertainment and media industry if certain sectoral policy barriers can be addressed. Some of the issues that need to be addressed which commonly impacts all segments and need to be addressed urgently include:

1 Piracy

The problem of piracy assumes a different proportion in a country such as India with an area of 3.3 million sq. km. and a population of over 1 billion speaking 22 different languages. It impacts all segments of the industry especially films, music and television. The current Copyrights Act too is dated in terms of technology improvements, and above all, it does not address the needs of the electronic media which has maximum instances of piracy today.

2 Merging of the FII and FDI caps

FII is primarily considered “hot money” and is invested by foreign funds to make quick returns unlike FDI, which is longer term in nature and is actually invested into the business. FDI in several cases is also accompanied with expertise (such as technology) being brought into the country that helps in the growth and development of the industry. An FII invests like a financial investor with the prime motive of quick appreciation of its invested capital rather than taking a longer-term view of the business, whereas an FDI investor is more in the nature of a strategic investor and is in the business for the long haul.

3. Lack of a uniform media policy for foreign investment

The sector currently lacks a consistent and uniform media policy for foreign investment. Some of the inconsistencies include different caps in foreign direct investment in various segments. Television distribution: DTH 49% (strategic FDI only 20%); cable 49% (ownership can only be with India citizens).Content (news): Television and print - 26%; radio – nil. Content (non-news): Television and print - 100%; radio 20% (only portfolio)

4. Price regulation in the television industry

As per a notification issued by the TRAI, broadcast media pricing has been frozen for over a year now. Though TRAI did allow a 7 percent inflationary adjustment late in 2004, the inflationary adjustment of 4 percent in 2005 is under a legal dispute. Such price controls limit a broadcaster’s ability to shape their business model, based on market demand and the competitive environment. Since the market has so far been efficiently regulated through competition, price regulation thus becomes a deterrent.

5. Cross-media ownership rules

Media integration is an important tool in the hands of the media industry which by its very nature could lead to anti-competitive behaviour hurting the entire value chain of the industry. The government has been mulling over evolving cross-media ownership rules for which even a public draft has not been evolved as yet. Most E&M sectoral policy documents have an in-built compliance clause, which states that companies have to abide by the cross-media rules.

India, as one of the fastest growing economies in the world, has recognized the need to open the media sector (at the broader level) for more competition. With clear policies and regulatory framework, the sector has the potential to grow at a faster clip going forward.

The Indian entertainment and media industry today has everything going for it - be it regulations that allow foreign investment, the impetus from the economy, the digital lifestyle and spending habits of the consumers and the opportunities thrown open by the advancements in technology. All it has to do is to cash in on the growth potential and the opportunities. The government, on its part, needs to play a more active role in sorting out policy-related impediments to growth. The industry needs to fight all roadblocks- such as piracy- in a concerted manner, while churning out high-quality, world class end products. The entertainment and media industry has all that it takes to be a star performer of the Indian economy.

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