AIDC Market in India - A Sunrise Sector- Whitepaper r

A White Paper by

Frost & Sullivan

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AIDC Market in India – A Sunrise Sector

© 2011 Frost & Sullivan

TABLE OF CONTENTS

Introduction and Overview of AIDC Market in India ...................................... 2

Emerging Trends for AIDC Technologies in India ............................................ 3

Frost & Sullivan’s Key Findings on AIDC Market ............................................ 5

Market Drivers and Restraints ........................................................................ 7

Key Areas in Need of Improvement ................................................................ 8

Outlook ........................................................................................................... 10

Annexure ........................................................................................................ 11

F R O S T & S U L L I V A N

INTRODUCTION & OVERVIEW OF AIDC MARKET IN INDIA

The Economy of India is the 10th largest in the world by nominal GDP and thefourth largest by purchasing power parity (PPP). India’s GDP witnessed consistentgrowth rates in excess of 9 percent until 2007. Despite the global economicturbulence, India continues to remain one of the high growth economies and itsGDP is expected to deliver consistent growth in this decade. With a nominal GDPof $1.43 trillion in 2010, India is expected to surpass China as the world’s fastestgrowing economy by 2018 and become a $3.5 trillion economy by 2020. Theservices sector contributed a major component of the GDP accounting for 57.2percent in 2010. Industrial and Agriculture segments contributed 28 percent and14.6 percent, respectively. Following strong economic reforms from the post-independence socialist economy, the country's economic growth progressed at arapid pace, as free market principles were initiated in 1991 for internationalcompetition and foreign investment.

Automatic Identification and Data Capture (AIDC) refers to the methods ofautomatically identifying objects, collecting data about them, and entering that datadirectly into computer systems (that is, without human involvement). Technologiestypically considered part of AIDC include bar codes, Radio Frequency Identification(RFID), biometrics, magnetic stripes, Optical Character Recognition (OCR), smartcards, and voice recognition

Frost & Sullivan classifies the following technologies under the ambit ofAIDC, namely:

1. Smart Cards

2. Radio frequency Identification Device (RFID)

3. Biometrics

The Automatic Identification and Data Capturemarket in India is fast emerging as a significantcontributor towards helping organizations managetheir operational efficiencies effectively. High-endAIDC technologies such as radio frequencyidentification (RFID), biometrics and smart cardsare helping both Government and Private sector enterprises in realizing theirobjectives, whether in security systems, track and trace solutions, or personnelidentification. AIDC technologies such as RFID have found favor in Supply ChainManagement (SCM), which includes inventory management and logistics, followedby government procurement. This has driven wide scale adoption of suchtechnologies.

However, challenges continue to exist in the form of continued low levels ofawareness about the AIDC product, high hardware prices thereby leading toprojects not moving beyond Proof-of-Concept stage (PoC). There also existunderlying security concerns about privacy. Frost & Sullivan expects newopportunities to emerge, paving the way for a continued fall in hardware prices,

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F R O S T & S U L L I V A N AIDC Market in India – A Sunrise Sector

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leading to a faster rate of adoption amongst industry peers. AIDC technologies areanticipated to garner momentum between 2010 and 2020, when India is foreseen towitness massive government spend to help transform the Indian economy.

EMERGING TRENDS FOR AIDC TECHNOLOGIES IN INDIA

A vast majority of India’s 1.2 billion population resides in villages. The central andstate Governments formulate numerous welfare schemes for the benefit of the vastrural population. However, challenges in their implementation result in a majorproportion of the beneficiaries not availing the benefits of welfare schemes. Thiscalls for use of technology to check pilferage in the distribution system and also toensure better transparency by maintaining end-user identity data onto a centralgovernment database. AIDC technologies in the form of smart cards and biometricsare coming to the rescue of various Government projects ranging from UniqueIdentification Authority of India (UIDAI) to Mahatma Gandhi National RuralEmployment Guarantee Act (MGNREGA) to various Financial Inclusion Schemes.

India’s telecom penetration is witnessing new highs in the form of Mobile SIMadoptability in rural areas. Assuming that India will not pass a regulation to removeinactive SIM cards, the SIM card volumes are to reach 1.5 billion by 2015 from 640million in 2010, which is almost 2-3 times the subscriber base in the U.S.

The Indian Government would embark on a massive infrastructure spend to helpbuild world-class roads, airports, railways and ports all of which would lead to anenhanced transportation and logistics infrastructure (for example, a freightcorridor), which would propel faster adoption of AIDC technologies such as RFID.

Chart 1: Mega Trend Impact on AIDC Industry in India, 2010-2020

F R O S T & S U L L I V A NAIDC Market in India – A Sunrise Sector


APPLICATION AREAS FOR AIDC

AIDC applications in India span various verticals including Logistics/Transportation,Government, Automotive, Retail, Financial Services, Process Industry, Healthcare,etc.

Chart 2: Application Areas for AIDC Industry in India

For Smart Cards, Mobile SIM card application garners the lion’s share with themost phenomenal growth coming in from multiple SIM card usage per subscriber

For RFID, primary consumers and the early movers have been the supply chainmanagement applications followed by Government procurement

For Biometrics, Government and Law Enforcement agencies have been theprimary users of this technology

FROST & SULLIVAN’S KEY FINDINGS ON AIDC MARKET

The AIDC Market in India is expected to grow from the current US $ 581 millionto nearly US $ 1.3 billion by 2014 at a Compound Annual Growth Rate (CAGR) of22.37 percent. Of all the AIDC technologies, Smart Cards takes the lions’ sharewith 2010 revenues pegged at US $ 510 million and expected to reach US $ 903million by 2014.


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Chart 3: AIDC Market Revenues Forecasts (India), 2010-2014

Some of the key highlights expected to drive adoption of AIDC technologies inIndia include:

• “Aadhaar” project - Unique Identification Authority of India has a target toenrol 600 million citizens by 2014; over 46 million enrolments have alreadybeen done until August 2011. A combination of Smart card and Biometrictechnology shall be put into use.

• Jawaharlal Nehru Solar Mission has set an ambitious cumulative target ofgenerating 20,000 MW of solar power by 2022. As part of this strategy, theGovernment has mandated that each solar or photovoltaic (PV) module placedinto use must carry an RFID tag, so that it can be easily identified and trackedthroughout its useful life.

• National Highways Authority of India (NHAI) has mandated the use of RFIDtechnology for toll collection across all of its 100+ toll centers through anelectronic toll collection (ETC) system.

• Issuance of Smart Card-based Drivers’ license and Registration Certificate inmany states to ensure uniformity and inter-operability across the country.

• Continually expanding mobile penetration and the growing preference for multiSIM mobile phones is catapulting the demand for smart cards in the SIM market.Similarly evolving compliance for EMV cards is expected to usher higher growthin the smart cards segment.

• The Commerce Ministry and Drugs Controller General of India (DCGI) havemandated that 96 Pharma products come under track and trace umbrella by2011 to help control the entry of counterfeit medicines in the market and assistthe enforcement teams in carrying out faster checks.



MARKET DRIVERS AND RESTRAINTS

Factors enabling and disabling growth in the AIDC market are represented in thechart below along with their influence on a time scale.

Chart 4: Impact of Drivers and Restraints on the AIDC Market in India,2011-2020

KEY AREAS IN NEED OF IMPROVEMENT

The AIDC markets in India are strongly propelled by various Government programsas well as demand from the banking, hospitality and telecom segments, to name afew. Efforts taken to create awareness of AIDC technology and its benefits amongstusers have created a positive impact on its adoption. Similar to low awareness,there are a few other challenges that need to be addressed to ensure a moreglorious growth for the AIDC markets in the country. Some of these are detailedbelow.

Chart 5: Areas needing Improvement in the AIDC industry in India


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Lack of Financing Models

Since the AIDC Industry is still at a nascent stage, the scale of projects may not bethat high; consequently, financing options are lacking. This is particularly true incases where a customer would seek to try out AIDC technology first and thenevaluate a possible full-fledged roll out for its remaining departments. There is alsoa need for companies to offer ccustomized ROI frameworks thereby reducingopportunity costs and lowering liabilities.

Absence of a local manufacturing environment

Low yield manufacturing volumes for producing AIDC hardware in India, result inthe need to import or procure AIDC hardware or technology, which adds up to thecosts. This in turn leads to higher project costs along with longer delivery cycles toimplement an AIDC solution with long gestation periods to justify Return onInvestment. There is also a lack of framework from the Government circles that canencourage indigenous production. Also high cost of manufacturing sensors hasfuelled the growth of assemblers in India.

Size and Complexity

In spite of standards in place allowing end users to multi-source AIDC solutions,coupled with possession of mature IC technology, technology know-how anddecent competency levels in the country, size and complexity are the biggestchallenges faced in the Indian market preventing massive rollout of the technology.

Threat from Substitutes

Availability of alternate technologies such as Bar codes causes companies to shyaway from adopting high-end AIDC technologies in spite of the known fact thatbarcodes would invite line of sight, for which manual intervention, in the form oflabor would be required. Hiring manual labor as against investing in high-endtechnology may prove to be a cost effective option.

Outlook

The massive population in India and the on-going Government drive for numerouswelfare and ID programs portend a strong future for the AIDC industry in India. Beit UID or NREGS or RSBY or any central/state program, AIDC technologies areexpected to be in demand at various stages of implementation. The Department ofIT, Ministry for communication has identified a couple of AIDC technologies asthose with significant potential in the domestic market and is encouraging R&D inthese technologies for indigenous development of products that shall be used in thevarious identification programs in the ensuing years. Private sector is also buoyantabout the opportunities for AIDC which is evinced from their increasinginvestments in product development, manufacturing facilities as well as brandingactivities. The chart below depicts the outlook for the AIDC industry in India.



Chart 6: Outlook for the AIDC industry in India


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AIDC Market in India - A Sunrise Sector- Whitepaper r

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