INDIA IN THE NEW KNOWLEDGE ECONOMY The Changing

INDIA IN THE NEW KNOWLEDGE ECONOMY The Changing Scenario Dr. Naresh Trehan Chairman, CII National Committee on Healthcare & Executive Director Escorts Heart Institute and Research Centre, New Delhi, India

INDIA IN THE NEW KNOWLEDGE ECONOMY Transition from BPO to KPO Destination ØGrowth of Services sector 8 + % ØContribution to India’s GDP 51 + % Knowledge Process Outsourcing - To grow 46% to $ 17 Billion by 2010 Emerging Trends in the last two years: § Silicon Valley VCs setting shop § US companies relocating up to 95% of R&D work in next generation technologies especially in the wireless space & optical networking systems. § Intel, Cisco doing core development work on chip design. § Texas Instrument has its global centre for wireless LAN & semi-conductors R&D based in India § Tech Multinationals have filed 1, 700 global patents for product developed out of India § Automotive engineering design services (AEDS) projects – already executed $ 500 million worth of Global Contacts – Bosch’s Indian team does major chunk of Diesel systems development in India PRODUCT DEVELOPMENT REQUIRES ONE – FOURTH THE INVESTMENT IN INDIA

INDIA IN THE NEW KNOWLEDGE ECONOMY þ Healthcare þ Pharma & Biotechnology þ Information & Communication Technology (ICT)

Indian Healthcare : The Changing Scenario Current Healthcare Landscape

Indian Healthcare : The Changing Scenario INDIA SPENDS US $ 22. 7 BILLION ON HEALTHCARE 5. 2% of GDP Total Healthcare Market * Retail Source: National Accounts Statistics 2001; Mc. Kinsey analysis Pharma market* Healthcare delivery market

Indian Healthcare : The Changing Scenario THE HEALTHCARE DELIVERY SECTOR PLAYS AN IMPORTANT ROLE IN THE ECONOMY TODAY Sector Direct employment Million, 2000 -2001 Revenues/GDP Per cent, 2000 -2001 Healthcare Education Healthcare is the largest service industry in terms of revenues and the second largest after education in terms of employment Retail banking Power Railways Telecom Hotels, restaurants IT By 2012, the sector could account for 7 to 8 per cent of GDP and provide direct and indirect employment of 9 million Source: National Accounts Statistics, 2001; Manpower profile; CBHI; Mc. Kinsey analysis

Indian Healthcare : The Changing Scenario IN TERMS OF DELIVERY, PRIVATE PROVIDERS CAPTURE 63% 0 F THE US $ 19 BILLION SPEND Healthcare provision, 2002 Per cent of total spending 100% = US $ 19 billion Private providers (individual, charitable and for-profit) Government and public employers* * Including government spend (20%), public employers’ spend (11%) and out-of-pocket spend at government providers (6%) Source: Mc. Kinsey analysis

Indian Healthcare : The Changing Scenario INDIA: AN EMERGING HEALTHCARE HUB

INDIAN HEALTHCARE CAPABILITY FACT#1: Proven Indian healthcare system ³ Over 60, 000 cardiac surgeries done per year with out comes at par with international standards ³ Multi organ transplants like Renal, Liver, Heart, Bone Marrow Transplants, are successfully performed at one tenth the cost. ³ Patients from over 55 countries treated at Indian Hospitals.

INDIA HAS THE OPPOURTUNITY TO PROVIDE THE BEST OF THE WEST & EASTERN HEALTCARE SYSTEMS Indian Systems Of Medicine “ Staging a Comeback” ³ Ayurveda recognized as an official healthcare system in Hungary. ³ Doctors in the west are increasingly prescribing Indian Systems of Medicine ³ More than 70% of the American population prefer a natural approach to health è Americans are said to spend around $25 bn on nontraditional medical therapies and products * Source : Los Angeles Times * Economic times dated 25 th July 2003 India’s Gift to the World Ayurveda Yoga Siddha

HEALTHCARE…. THE SUNRISE INDUSTRY “Physicians, Nurses, Medical Technicians and Other Scientific Occupations will Become Growth Industries to Rival the IT Sector within the Next Decade” - India Vision 2020 Report

Indian Healthcare : The Changing Scenario Cost Advantage PROCEDURE COST (US$) US US THAILAND INDIA UK Heart Surgery 40, 000 7, 500 6, 000 23, 000 Bone Marrow Transplant 2, 50, 000 ------- 26, 000 1, 50, 000 Liver Transplant 3, 000 ------- 69, 000 2, 000 Knee Replacement 20, 000 8, 000 6, 000 12, 000 Cosmetic Surgery 20, 000 3, 500 2, 000 10, 000

Indian Healthcare : The Changing Scenario HUGE GROWTH POTENTIAL – TO GROW BETWEEN US $ 43 – US $ 60 BILLION IN 2012 60. 0 US $ IN BILLION at 2000 -2001 prices 51. 0 43 17. 0 8. 0 Government spending Private spending 19 3. 76 Assumption *With 6% GDP real growth per year 35. 0 15. 24 2001 Key 43. 0 Government Spending 2012 Scenario 1: Baseline increase in private spend 1% GDP 2012 Scenario 2: Baseline with insurance in middle class 1% GDP 2012 Scenario 3: Baseline with insurance and high government spending 2% GDP ESTIMATE

Indian Healthcare : The Changing Scenario INDIA OFFERS HUGE POTENTIAL FOR INVESTMENTS IN HEALTHCARE OVER THE NEXT 10 YEARS Investment requirements in India (Estimates) US $ in Billion Next 10 years Healthcare 22 -31 Power** Telecom** Roads** 95 -126 40 -51 24 -33 * Estimates based on analysis detailed in Chapter 3 of this report ** Estimates computed by scaling 2002 -06 estimates from Rakesh Mohan committee report by a factor of 1. 5 -2. 0 Investment needs of the healthcare sector are comparable to other infrastructure sectors

INDIA IN THE NEW KNOWLEDGE ECONOMY India’s Growth Sectors Pharmaceuticals & Biotech

The Indian Pharmaceutical Industry has practically achieved Self sufficiency & Global recognition as a Low cost producer of High-quality bulk drugs & formulations

KEY ACHIEVEMENTS India has the 2 nd highest number of qualified doctors in the world. Of every six medical doctors in the US, one is Indian India’s huge population and the prevalence of a wide spectrum of disease conditions offer a wide patient-resource for clinical trials While clinical trials cost approximately $300 to 350 million in US, they cost only about $25 million in India Investigational New Drug stage costs about $100 to 150 million in US, but costs only around $10 to 15 million in India 700, 000 science and engineering graduates & 1500 Ph. Ds qualify annually. Over 15, 000 scientists Indian companies are offering custom synthesis services at 3050% cost savings compared to global costs

CHANGING FACE OF INDIAN PHARMA Players thinking local Players thinking global Indian pharma companies filed the largest number of Drug Master Files (DMFs) for APIs and 23% of ANDAs with the USFDA during 2003 Export revenues now contribute over half the total revenues for the Indian pharma majors Top 5 Companies Sales & Export Revenues Source: Company reports Ranbaxy acquired RPG Aventis, France; Wockhardt acquired CP Pharmaceuticals, UK; Zydus Cadila acquired Alpharma, France Pharmaceutical exports increased at a CAGR of 23% during FY 1995 FY 2002

CHANGING FACE OF INDIAN PHARMA MNC-Domestic Competition MNC-Domestic Collaboration Co-marketing New Drug Research Glaxo-Cipla, Wockhardt-Bayer, Ranbaxy-Knoll tie-ups Glaxo Smith. Kline's recent R&D alliance with Ranbaxy Laboratories Clinical Trials Pharma - IT COLLABORATION Novartis processes drug safety data and is designing clinical development software Novartis, Astra Zeneca and Eli Lilly making India a global hub for clinical trials In-licensing Local research Ranbaxy licensing agreement with KSB, UK for marketing Trans. MID Astra Zeneca’s $40 million R&D facility in Bangalore for TB drug discovery Source: Media Reports, E&Y

INDIA IN THE NEW KNOWLEDGE ECONOMY BIOTECHNOLOGY

Market - A Consistent Uptrend 25% growth in investment 2002 -03 70% growth in employment 74% growth in R&D manpower USD 5 billion annual revenues 2010 1 million skilled jobs 10% of global industry Source: Confederation of Indian Industry (CII)

GOINGSOURCE FROM INDIA BIOTECH GLOBAL IN India’s first genetically engineered vaccine costs less than half the price of competing vaccines Shantha Biotech- SHANVAC-B meets 40% of the global demand of Hepatitis B vaccine. India: largest producer of Measles & DTP Biogenerics $25 vaccines. Vaccine exports to over 130 billion biological countries products going off patent in 2004. Indian companies strong in biogenerics Bio Agri - India (2 nd largest producer of food) offers significant opportunities to source products Clinton Foundation sourcing HIV treatment from four firms - three of which are from India Biocon was the first enzyme company globally to receive ISO certification in 1993 One out of every two children in the world is immunized by a vaccine made in India Source: Newspaper Reports

The India Advantage Excellent network of research laboratories Rich biodiversity Well-developed base industries Extensive clinical trials opportunities Trained manpower and knowledge base

INDIA IN THE NEW KNOWLEDGE ECONOMY Information & Communication Technology (ICT)

India : Key IT figures Software & services export(2004 -05) ~ US $ 17. 5 billion n Grown from a $150 m in 1991 -92 n CAGR in last 10 yrs: 35% n Projected to be US $ 50 b in 2008 • Software & services domestic(2004 -05) ~ US $ 4. 5 bn • IT enabled services(2004 -05) ~US $ 4. 9 bn • US$ bn • IT domestic hardware(200405) ~ US $ 4. 8 bn Balanced Portfolio of IT offerings Source: Mc. Kinsey: NASSCOM

India: Moving up the Value Chain Consulting Embedded software Network Security Network Management Package Implementation Application development Package Implementation Facilities management Migration & Reengineering Unix-based coding 1960 Mainframe Maintenance Client / Server E-business applications Web Enabling legacy Maintenance Internet 2000 Aligned to Technology Needs Source: SSB, Fall 2000

Telecom Market Ø 7 th largest telecom network in the world ØSize (2003) 2010 (projected) US$ 9 billion US$ 23 billion Ø Telecom network growth rate 30% Ø Fixed lines (Dec, 2004) 44. 76 million Ø Wireless connections (Dec, 2004) 48 million

Rising Teledensity & Telephone Subscribers • India is targeting 250 million users by 2007 • India needs $30 billion to meet a target of one phone for every five people by 2010 • Total telecom revenues expected to almost triple from USD 9 billion in 2002 to USD 23 -25 billion by 2007.

WORKFORCE SHORTAGES AND AVENUES OF SUPPLY Potential surplus population in working age group (2020) Germany-3 Mn UK -2 Mn 0 Mn -1 Mn Iraq Ireland US -17 Mn France Spain -3 Mn 2 Mn -2 Mn Italy 5 Mn -6 Mn Turkey 2 Mn Israel Iran 0 Mn 3 Mn 4 Mn Egypt Mexico Russia Czech Republic China -10 Mn Pakistan 19 Mn 47 Mn -9 Mn Japan 5 Mn 7 Mn Bangladesh Philippines 4 Mn India Vietnam 1 Mn Malaysia 3 Mn 5 Mn Indonesia Brazil -0. 5 Mn Australia Note: Potential surplus is calculated keeping the ratio of working population (age group 15 – 59) to total population constant; Source: U. S. Census Bureau; BCG Analysis

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