The Impact and Future of Enterprise Asset Management in India
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Today's blog comes from Santosh Santhanam.
With a population estimated at about 1.17 billion, India is the world’s second most populous nation and the world’s biggest democracy. It is expected to overtake China (currently the most populous) by 2040. India is the world's 12th largest economy and the third largest in Asia behind Japan and China--with total GDP of around $1.55 trillion (2010f).
Although over 50% of the population depends on agriculture for its livelihood, India’s large number of well-educated and technically qualified people has helped it become a major exporter of software services and manufactured products. Also contributing to this is the large number working population (those aged 15-64), estimated at 780 million in 2010, representing 64% of the population. This is projected to peak at 70% of the population by 2040.
Movement of the population from rural to urban areas in search of better standard of living and career prospects is putting a lot of pressure on the civil infrastructure. In recent years, local governments have been investing heavily in construction of roads, metro rail projects and power plants to alleviate the situation. This trend is likely to spawn a vast number of mega cities in the future.
The Economic liberalization which began in the early 1990s has served to accelerate the country's growth, which has averaged more than 7% since 1997. Reforms such as liberal foreign investment and exchange regimes, industrial decontrol, reductions in tariffs and trade barriers, opening up and modernization of the financial sector, significant adjustments in government monetary and fiscal policies, and more safeguards for intellectual property rights have helped India become one of the fastest growing economies in the world. India’s growth, particularly in manufacturing and IT services, has boosted the sentiments, both within country and abroad. With an upsurge in investment and robust macroeconomic fundamentals, the future outlook for India is distinctly upbeat.
India’s Infrastructure: EAM will play a vital role
The rapid urbanization has been putting a lot of pressure on the public infrastructure and other utilities. Infrastructure is seen as a key weakness for India when compared to other peer nations. In recent years, there has been an increased focus on public infrastructure investment as a means to both, uphold domestic demand in the short term and improve India’s long-term growth. Here is a look at some of the critical sectors and where we see EAM playing a vital role.
India has the second largest road network in the world after the US, with over two million miles of roads, of which half are paved. The majority of the country’s freight is transported by road and it is estimated that by 2014 11% or roughly 280 million of the population will own a car. With the current road infrastructure already unable to manage the load, there is a critical need to invest in expanding the road network to as well as maintaining the existing roads. Over the next three to four years the Indian Government is hoping to oversee investment of US$70bn in the country’s road network.
The Government has set ambitious plans for up gradation of the National Highways and other projects like paving of 2 and 4 lane roads of over 18,000 miles in length, accelerated road development program for the North Eastern region and development of ring roads, bypasses, grade separators and service roads in the years to come.
Metrorail & Railways
The last two decades have witnessed a mass exodus of people moving to urban cities in hope of better job prospects and standard of living and the current public transport systems in place have failed to handle the increased commuter traffic. Since the late 1990s, about 15 Indian cities have embarked on ambitious projects to introduce Metro rail systems to ease the load. The capital, New Delhi has already completed the first phase of its four phase project with impressive results to show. The Delhi Metro network now operates six lines with a total length of about 97 miles with 132 stations. Around 130 trains are operated on a daily basis, with an average daily ridership of 1.47 million commuters and as of August 2010, over 1.25 billion commuters have used the service since its inception in 2002. Since the last 10 years, about US$ 20 billion have been invested in the Metro Rail projects and in the next 10 years, there would be an additional requirement of about US$ 22 billion to complete the ongoing and upcoming projects.
With about 40,000 miles of railways, India has the world’s fourth largest rail network after the US, Russia and China. The high density network connecting the four metropolitan cities of Chennai, Delhi, Kolkata and Mumbai, including its diagonals, popularly called the Golden Quadrilateral is saturated at most of the locations. Given the present growth scenario, the Railways expect to carry 95 million tons of incremental traffic per year and about 1,100 million tons revenue earning freight traffic by the 2012 which entails a large investment for capacity augmentation.
Ports have always played a crucial role in facilitating India’s domestic and international trade. India’s coastline of 4,670 miles boasts 12 major ports and 140 minor ports. The major ports are operated by port trusts set up by the central government, while the minor ports tend to be operated by state authorities. India's rapidly expanding trade requirements are expected to put immense strain on the country's existing port infrastructure. According to a report by Bloomberg, tonnage throughput at the 12 major ports is set to double to 1 billion tons by 2012. There is a need for US$ 20 billion of investment between 2007 and 2012 to be able to handle the load. The private sector is being targeted to provide much of this investment, and in September 2009 the government announced plans to award contracts for 28 projects across the country worth a total of US$ 4.11 billion.
As expected, the surge in economic activity in India has translated to growing numbers of international business travelers and tourists visiting the country. 40% of India's trade by value, and 95% of international travel to and from India, takes place through the Airports. India currently has 346 airports, with a few of them added recently and many others under going much needed up-gradation and renovation. Introduction of various low cost carriers and increase in domestic travel helped domestic carriers register a growth of 19.3 percent flying 33.9 million passengers between Jan-Aug. 2010.
To meet growing demand, Indian carriers are placing major orders for aircrafts. As per Airbus' Global Market Forecast 2004-2023, Airbus forecasts that the number of new aircraft it would sell to Indian carriers would go up to 400 by the year 2023. This will make the India the third largest market for new aircraft in Asia, behind China (1,790) and Japan (640). Boeing expects India to buy aircraft worth US$ 35 billion in the next 20 years. Also, as per regulations, every new carrier launched in the country will need to buy a minimum of five aircraft to start operations.
To meet this upward surge in traffic there is an immediate need for improvement to the existing infrastructure. In the next 10 years India's aviation sector is expected to see investments to the tune of US $50 billion. The private sector and the government are expected to invest about US $30 billion in this sector in the next 5 years.
With new airports, up-gradation of existing airports and fleet on the anvil, opportunities exist for various organizations including those involved in airport and aircraft maintenance & management, terminal construction, passenger and cargo handling and related services. This makes India a very attractive market for airport and avionics equipment manufacturers and service providers. The Government of India policy to liberalize the civil aviation market also presents foreign firms with significant investment opportunities.
Energy & Utilities
The rapid population growth and continued high levels of economic growth have put a strain on India’s electricity sector and this trend is set to continue over the coming years. According to the BP Statistical Review, in 2008, India generated 834.3TWh (equal to 4.1% of global electricity generation) and an increase of 2.9% compared to 2007. Despite this increase, in 2008/09 demand outstripped supply by 9.5%, rising to 13.8% at peak times. This means that power cuts and rationing are common occurrences and presents a major obstacle to the country's business environment and economic development.
Coal-fuelled power plants generate more than half of India’s power. Gas contributes around 17% and nuclear accounting for just about 2.5%, which comes from six nuclear power complexes containing 17 reactors, with a power generating capacity of 4,120MW. The Nuclear power sector is attracting major investments as it seems like a promising answer to the rapidly growing demand. By 2050, 25% of the power generation is set to come from nuclear plants.
Hydropower accounts for a significant proportion of the power generating capacity accounting for 18.5%, with a capacity of 162TWh as of 2009. Though India has a vast potential for solar power, this sector is still in its infancy. Ambitious plans are in place to generate 20GW of power by 2020 and 200GW by 2030. The government is looking at investing about US$ 20 billion in the next 30 years to assist with the manufacturing and installation of solar power plants.
Oil & Gas
The oil and gas industry has been instrumental in fuelling the rapid growth of the Indian economy. India has total reserves of 775 million metric tons (MMT) of crude oil and 1074 billion cubic meters (BCM) of natural gas as on April 1, 2009, according to the basic statistics released by the Ministry of Petroleum and Natural Gas. Petroleum exports during 2008-09 were US$ 26 billion.
During April-May 2010, crude oil production went up to 5.82 MMT, a 5.5 per cent increase over the corresponding period in 2009, 27 MMT of crude oil was refined, an increase of 8 per cent vs. 2009 and the actual natural gas production was 9 BCM, an increase of 43 per cent over compared to 2009.
India's natural gas demand is expected to nearly double to 320 million metric standard cubic meters per day (mmscmd) by 2015, according to a report released by McKinsey at the VI Asia Gas Partnership Summit.
Early this year, Gas Authority of India Ltd (GAIL) said that gas availability in India is expected to grow at 23 per cent compounded annual growth rate (CAGR) to 312 mscmd by 2013-14. GAIL is investing significantly in its pipeline network and over the next three years, it will invest about US$ 700 million, expanding its transmission capacity. In addition, the government too has been taking many progressive measures to create a conducive policy and a better regulatory framework to attract investments.
Impact of EAM
India is a huge and complex country. Companies, public infrastructure and systems which were built slowly over time are suddenly overwhelmed with the rapid growth all around which they are unable to keep pace with. While there is a lot of investment being poured into the various sectors, there is also a need to put in place smart systems which will help avoid the confusion and chaos which usually comes about with erratic patterns in growth and demand, as has been the case in the last two decades. No one imagined modest cities like Bangalore to develop into IT powerhouses attracting millions of people and in effect, putting a massive strain on the infrastructure.
Increasingly, companies, both public and private are looking to technology to help them manage and maintain their infrastructure and myriad of assets. One such IT solution which is gaining quick acceptance is the Enterprise Asset Management (EAM). By providing a platform for connecting people, processes, assets and decision support capabilities EAM solutions provide a holistic view of an organization's asset base, enabling managers to control and optimize their operations for quality and efficiency. EAM solutions are especially useful in managing huge and complex assets in critical sectors like Oil & Gas, Energy & Utilities, Manufacturing and Transportation, where downtimes can be very expensive, both in terms of lost production capacity and unfavorable publicity.
One product in particular gaining traction in India is IBM Maximo Asset Management. In the last year, Maximo has had breakthroughs with quite a few prominent Indian companies and Multi National Corporations operating in India, such as, Carrefour Retail, Apollo Hospitals, 3C Facilities (facilities management), Operational Energy Group (power plant operations and maintenance), Maithon Power, Jubilant Organosys (chemicals and pharmaceuticals), Wipro Global Energy Management Systems, Terminal 3 at the New Delhi Indira Gandhi International Airport to name a few.
Given the current scenario and the investments being made, EAM is all set to play a pivotal role in many of the sectors: The Power sector where approximately 200 power plants are being proposed / under construction for Thermal and Hydro power, Transportation – with a large investment by the Indian Railways in Asset Management, the ongoing Metro and Mono Rail projects in various cities and the quantum of assets in the form of buses and depots which the various State Transport Corporations have to manage and other asset intensive Public infrastructure like Roads, Airports and Ports.
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