KEYNOTE SPEECH

Vik MalhotraChairman of the Americas, McKinsey & Company, Inc.,

Key Note Speech

• Chairman of the Americas for McKinsey and leads practices in both North America and

Latin America.

• Led McKinsey‟s Northeast Office (New York, Boston, Stamford) and prior to that, led

McKinsey‟s Financial Institutions Practice.

• Member of the Firm‟s Shareholders Council (Board of Directors), Firm‟s Director Review

Committee.

• Focused on Wholesale Banking, Asset Management, Private and Retail Banking

• Consulting experience of financial services for a broad range of assignments on

corporate strategy, business unit strategy, growth strategies, performance

transformation, organizational design, operational improvement and business process

off shoring.

• Graduate of the Wharton School, University of Pennsylvania and Undergraduate Degree

in Economics from the London School of Economics.

Capturing the India

Opportunity

18 November 2010

CONFIDENTIAL AND PROPRIETARY

Any use of this material without specific permission of McKinsey & Company is strictly prohibited

McKinsey & Company | 4

Agenda

The Indian economy

Themes driving the Indian economy

Imperatives to capture the India opportunity

McKinsey & Company | 5

Real GDP growth

US$ billion

Growth has been led by private consumption and services…

SOURCE: Global Insight; McKinsey analysis

* Includes mining quarrying, electricity, gas and water supply & Other Services

1,101

892

2006-07

209

2009-10

Real GDP growth – output approach

41

12

54

Investments

-6

Public

Consumption

Private

consumption

Net Trade= -6%

18

15

268

16

16

Others*

Financial

services

Trade, hotels,

transport &

communication

Construction

Manufacturing

Agriculture

Real GDP growth – expenditure approach

FY 10; percent

FY 10; percent

McKinsey & Company | 6

ChinaIndia

… and has transformed India from an agrarian to a services-led economy

35

16

28

29

Agriculture

Industry1

Services2

20093

55

1980

37

38

9

20093

524

39

1980

354

26

1 Industry includes Mining, Manufacturing, Electricity ,Gas & Water and Construction 2 Services includes Whole & retail Trade, Restaurants & Hotels,

Transportation & Communications, Finance, Insurance, Real Estate & Business Services and Community, Social & Personal Services; 3 For calendar

year 2009

SOURCE: WIS Global Insight; team analysis

Value added to GDP

Per cent

McKinsey & Company | 7

Significant investment of around USD 500 Bn in core infrastructure sectors

is expected over the next 5 years

SOURCE: McKinsey perspectives; industry databases; press clippings; interviews

▪ Planned

increase in

infra spend by

7% of GDP

(from 4%)

▪ Infra spend of

$500 billion in

2008-12

Inflection

Steady growth

Stable

Sector 2012-15; evolution

▪ Development in Tier 2

and Tier 3 cities

▪ Nuclear power sector

▪ Smart grids/Automation

▪ Emphasis on technology

▪ Continuing demand

▪ Export focus

▪ Investments by Steel

majors

▪ Increase in disposable income,

urban population

▪ Need for commercial space

▪ Traditional thermal power to

dominate

▪ PPP models

▪ Capacity additions

▪ Growth driven by steel sector

▪ 60% greenfield projects

▪ 40% brownfield projects

▪ Bulk of investments in refining

▪ Increased supply

▪ National gas grid (interstate

pipelines)

▪ Deep water exploration

▪ Full commercialization of

KG basin

▪ International pipeline gas

Real estate

Power

Metals and mining

Oil and Gas

Airports

Petro-chemicals

80-100

84-99

31-38

26-35

8-9

6-9

2008-11; investments (US$ billion) and highlights

McKinsey & Company | 8

With long term fundamentals in place, India is poised for long term growth

SOURCE: McKinsey analysis

Key factors driving the rise of India

GDP growth ▪ Economic growth at an inflection point

▪ 4th largest economy by 2025

▪ Young working population growth to continue till 2035

Increase in

consumption

▪ Increased consumer spending driven by increasing earnings, rising

disposable income, reduced incentives to save and availability of

consumer finance

▪ Large young population – ~70% of people below 35 years

▪ Estimated to become the fifth largest consumer market by 2025

Favorable

government

policies

▪ Rationalization of taxes and duties

▪ 100% FDI allowed in most key sectors

▪ Stability across key macroeconomic parameters

Infrastructure

growth

▪ ~US $500 billion to be invested in infrastructure development in the next

5 years across roads, ports, airports, power, communication, urban

and rural development

Stable banking

sector

▪ Despite the economic crisis, the banking sector has been stable

Emergence of

strong corporate

India

▪ Several industries have drastically transformed in short time spans

▪ Domestic and foreign businesses are scaling up investments

McKinsey & Company | 9

Agenda

The Indian economy

Themes driving the Indian economy

Imperatives to capture the India opportunity

McKinsey & Company | 10

What is new in India that could impact your business?

… and several factors drive continued momentum,

creating substantial new business opportunities as well

as challenges

We all know

India is big …

Massive urbanization2

Rise of global aspirations from India

5

Climate change4

Rise of middle class and changing consumer dynamics

3

Demographics1

McKinsey & Company | 11

Demographics – Did you know?

▪ Average age of population in 2020

– India – 26 years

– China – 38 years

– U.S. – 38 years

– Europe/Japan – Mid 40s

▪ 1 in 6 of all people in the world is an Indian

▪ 1 in 4 of all people under the age of 25 is an Indian

McKinsey & Company | 12

Cities are likely to house 40 percent of India‟s population by 2030 and…

SOURCE: McKinsey‟s India Urbanization Econometric Model; McKinsey Global Institute analysis

2.1 Massive urbanization

1 Defined as the ratio of urban to total population based on the census definition of urban areas; population >5,000; density

>400 persons per square kilometer; 75 percent of male workers in nonagricultural sectors; and other statutory urban areas.

Urban population

Million

290220

2030

340

1991 2008

590

2001

+250

30 4026Urbanization rate1

%

1,155 1,470856Total population

Million

1,040

28

McKinsey & Company | 13

… account for nearly 70 percent of India‟s GDP by 2030

SOURCE: McKinsey‟s India Urbanization Econometric Model; McKinsey Global Institute analysis

2.1 Massive urbanization

Share of India‟s GDP

%; rupees billion, real 2008

4654 58

69

5446 42

31

238,041

Urban

2030

100% =

Rural

2008

49,043

2001

29,100

1990

15,903

Compound annual

growth rate, 2008–30

%

Share of

growth

%

7.4

5.9

8.3

100

28

72

McKinsey & Company | 14

With increasing urbanization and rising GDP the size

of the Indian middle class would also grow dramatically

SOURCE: India Urbanization Econometric Model

2.2 Rise of middle class and changing consumer dynamics

1 Middle-class : Strivers and Seekers category

All India households by income bracket, 2000–30

%, million households, 2000 prices

64

2615

31

34

40

32

0 2 1

2000

Globals

>1,0004

1

100% =

Deprived

<90

189

Aspirers

90–200

Seekers

200–500

Strivers

500–1,000

2030

322

29

17

7

2020

273

25

50

63

2008

222

12

Middle class

Income segment

Rs thousand

▪ Middle-class1 to

swell to about 148

mn households by

2025 (~31 million

in 2008)

▪ Along with

„globals‟ segment,

middle-class will

quadruple

consumption by

2025 (from 2008)

McKinsey & Company | 15

New entrants often hold some myths about the Indian consumer2.2 Rise of middle class and changing consumer dynamics

“Indian customers are

predominantly price bargain

hunters”

Indian customers, like their global

counterparts, prize aesthetics and in addition

expect contemporary but practical features

“Most Indian customers pay for

practicality only” While reliability, value, and comfort are

prerequisites, refined segments of customers

(substantial in number) valuing performance

and image exist

“Affordability the only trigger

for purchases”

Availability of wide range, new features and

models, followed by need to address upgrade

requirements, are also big triggers

“Selling in India is a product

game”

An excellent “customer life-cycle” experience,

i.e., ease of availability, service, maintenance

are also is critical to success

“Consumers are not loyal and

can be easily attracted to

switch, especially by MNCs”

Indian customers are extraordinarily loyal to

brands that deliver value, irrespective of

origins

“It's all about snazzy

advertising”

Positive word-of-mouth and an excellent

dealer experience are critical to winning

Indian customers, not advertising

MYTH REALITY

McKinsey & Company | 16

Indians seek best brands even if unaffordable2.2 Rise of middle class and changing consumer dynamics

1

SOURCE: McKinsey report on How Half the World Shops (2008)

India

Other countries

FOOD EXAMPLE

“When I go shopping I like to see the best brands, even if I am unable to afford them”

Percent agree/strongly agree

20

26

46

55504948

72

McKinsey & Company | 17

Range matters to Indian shoppers2.2 Rise of middle class and changing consumer dynamics

3

SOURCE: McKinsey report on How Half the World Shops (2008)

India

Other countries

FOOD EXAMPLE

54646061596482

45

Preference true across cities and income segments, but especially true among the

youth

“I prefer shopping in a store which offers a full range of products at all quality and price

levels”

Percent agree/strongly agree

8288

>25 years<25 years

Percent agree/strongly agree in India

McKinsey & Company | 18

India faces a serious climate change challenge with emissions expected

to increase four-folds in next 20 years

SOURCE: McKinsey report on „Environmental and Energy Sustainability: An Approach for India‟

With a GDP growth rate of 6 to 9 per cent, the demand growth

in key sectors such as power, industry and transportation is likely to fuel

an increase in Greenhouse Gas (GHG) emissions

Increasing emissions

5

2005 2030

Best case

2030

worst case

1.6

6.5In billion tonnes (CO2e)

2.3 Climate change

McKinsey & Company | 19

India‟s fight against climate change also throws up business opportunities

where MNCs could have an edge with their advanced technologies…

SOURCE: McKinsey Analysis

2.3 Climate change

Clean

power

Energy-

efficient

industry

Green

transportati

on

Sustainable

habitats

Potential opportunity areas

▪ Renewable energy technologies like Hydro, Wind and Solar power generation

▪ Cleaner power generation technologies

▪ Using cleaner coal technologies like super critical and ultrasupercritical

Sustainable

agriculture

& forestry

▪ Energy-efficient technologies and processes in energy-intensive industries such as

– Steel

– Cement

– Chemicals and

– Oil refining

▪ Fuel-efficient cars and commercial vehicles including electric / hybrid vehicles

▪ Developing integrated multi-modal logistics system like creating rail and coastal freight

corridors which can reduce oil consumption

▪ “Green building” – like insulation, high efficiency HVAC

▪ High-efficiency appliances and electronics

▪ Energy-efficient lighting like LED lighting

▪ Efficient irrigation techniques and high efficiency pumps

▪ Improved farming tools

▪ Better farmland and forestry management techniques and services

McKinsey & Company | 20

India is witnessing a rapidly growing private sector with global aspirations2.4 Global aspirations of Indian companies

SOURCE: Press articles; Prowess; CMIE; Dealogic; Bloomberg; McKinsey analysis

1 Market Cap as on 22 Jun 2010 and Sales as on last reported Financial year end

2 March 2009 Reported results.

The transformation

Number of billion dollar companies

(by revenue)

21

35

6

27

13

US$1-2 bn

US$2-5 bn

US$5-10 bn

>US$10 bn

2008–092

79

4

1998

32

41

▪ Reliance Communication emerged as a confident and smart company that emerged on top in a saturated and highly competitive industry

▪ Current market cap1 at ~ US$ 8.3 Bn

▪ Awarded Best Bank of the Year 2008 by The Banker magazine at Banker Awards in London

▪ Oldest Bank with sales of US$ 10.9 Bnand market cap1 of US$ 32 Bn

▪ India's largest non-ferrous metals and mining company & one of the fastest growing private sector companies

▪ Sales at US$ 4.6 Bn & market cap1 US$ 6.52 Bn

▪ Became a bank in 2000; 2nd largest bank in India today

▪ Current market cap1 at ~ US$ 21 Bn

Some success stories 1

McKinsey & Company | 21

Indian companies are going global in a big way with outbound M&A

witnessing a sharp increase from 2005 onwards

2.4 Global aspirations of Indian companies

SOURCE: Dealogic

1 Upto May 12, 2010

Deal Value

$ Millions

18,862

1,471

18,201

21,900

1,5331,006957

2010200920082004 200620022000

50 29 51 187 277 121 87

Deal Volume (No. of deals)

$12,983 Mn

$10,700 Mn

$2,624 Mn

$1,794 Mn

$5,731 Mn

$2,300 Mn

McKinsey & Company | 22

Agenda

The Indian economy

Themes driving the Indian economy

Imperatives to capture the India opportunity

McKinsey & Company | 23

Innovate business models and operations to compete

effectively in an Indian context

Customise offerings to meet the changing Indian needs

Visible, strong and consistent top leadership commitment and support

Scale-up via major deals and partnerships

Actively shape and manage perception and regulation

Empower the local organization and develop a compelling talent

proposition

Leverage India for global products, services and talent

Seven imperatives to capture the India opportunity