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50 Years of Growth, Innovation and Leadership

AIDC Market in India A Sunrise Sector

A White Paper by
Frost & Sullivan

2011 Frost & Sullivan

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TABLE OF CONTENTS
Introduction and Overview of AIDC Market in India ......................................

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

Frost & Sullivans Key Findings on AIDC Market ............................................

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

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

Outlook ........................................................................................................... 10
Annexure ........................................................................................................ 11

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AIDC Market in India A Sunrise Sector

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INTRODUCTION & OVERVIEW OF AIDC MARKET IN INDIA


The Economy of India is the 10th largest in the world by nominal GDP and the
fourth largest by purchasing power parity (PPP). Indias GDP witnessed consistent
growth rates in excess of 9 percent until 2007. Despite the global economic
turbulence, India continues to remain one of the high growth economies and its
GDP is expected to deliver consistent growth in this decade. With a nominal GDP
of $1.43 trillion in 2010, India is expected to surpass China as the worlds fastest
growing economy by 2018 and become a $3.5 trillion economy by 2020. The
services sector contributed a major component of the GDP accounting for 57.2
percent in 2010. Industrial and Agriculture segments contributed 28 percent and
14.6 percent, respectively. Following strong economic reforms from the postindependence socialist economy, the country's economic growth progressed at a
rapid pace, as free market principles were initiated in 1991 for international
competition and foreign investment.
Automatic Identification and Data Capture (AIDC) refers to the methods of
automatically identifying objects, collecting data about them, and entering that data
directly into computer systems (that is, without human involvement). Technologies
typically considered part of AIDC include bar codes, Radio Frequency Identification
(RFID), biometrics, magnetic stripes, Optical Character Recognition (OCR), smart
cards, and voice recognition
Frost & Sullivan classifies the following technologies under the ambit of
AIDC, namely:
1. Smart Cards
2. Radio frequency Identification Device (RFID)
3. Biometrics
The Automatic Identification and Data Capture
market in India is fast emerging as a significant
contributor towards helping organizations manage
their operational efficiencies effectively. High-end  ! !
AIDC technologies such as radio frequency ! # 
identification (RFID), biometrics and smart cards #    
are helping both Government and Private sector enterprises in realizing their
objectives, whether in security systems, track and trace solutions, or personnel
identification. AIDC technologies such as RFID have found favor in Supply Chain
Management (SCM), which includes inventory management and logistics, followed
by government procurement. This has driven wide scale adoption of such
technologies.
However, challenges continue to exist in the form of continued low levels of
awareness about the AIDC product, high hardware prices thereby leading to
projects not moving beyond Proof-of-Concept stage (PoC). There also exist
underlying security concerns about privacy. Frost & Sullivan expects new
opportunities to emerge, paving the way for a continued fall in hardware prices,

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AIDC Market in India A Sunrise Sector

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leading to a faster rate of adoption amongst industry peers. AIDC technologies are
anticipated to garner momentum between 2010 and 2020, when India is foreseen to
witness massive government spend to help transform the Indian economy.
EMERGING TRENDS FOR AIDC TECHNOLOGIES IN INDIA
A vast majority of Indias 1.2 billion population resides in villages. The central and
state Governments formulate numerous welfare schemes for the benefit of the vast
rural population. However, challenges in their implementation result in a major
proportion of the beneficiaries not availing the benefits of welfare schemes. This
calls for use of technology to check pilferage in the distribution system and also to
ensure better transparency by maintaining end-user identity data onto a central
government database. AIDC technologies in the form of smart cards and biometrics
are coming to the rescue of various Government projects ranging from Unique
Identification Authority of India (UIDAI) to Mahatma Gandhi National Rural
Employment Guarantee Act (MGNREGA) to various Financial Inclusion Schemes.
Indias telecom penetration is witnessing new highs in the form of Mobile SIM
adoptability in rural areas. Assuming that India will not pass a regulation to remove
inactive SIM cards, the SIM card volumes are to reach 1.5 billion by 2015 from 640
million 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 help
build world-class roads, airports, railways and ports all of which would lead to an
enhanced transportation and logistics infrastructure (for example, a freight
corridor), which would propel faster adoption of AIDC technologies such as RFID.
Chart 1: Mega Trend Impact on AIDC Industry in India, 2010-2020

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AIDC Market in India A Sunrise Sector

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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 lions share with the
most phenomenal growth coming in from multiple SIM card usage per subscriber
For RFID, primary consumers and the early movers have been the supply chain
management applications followed by Government procurement
For Biometrics, Government and Law Enforcement agencies have been the
primary users of this technology
FROST & SULLIVANS KEY FINDINGS ON AIDC MARKET
The AIDC Market in India is expected to grow from the current US $ 581 million
to nearly US $ 1.3 billion by 2014 at a Compound Annual Growth Rate (CAGR) of
22.37 percent. Of all the AIDC technologies, Smart Cards takes the lions share
with 2010 revenues pegged at US $ 510 million and expected to reach US $ 903
million by 2014.

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AIDC Market in India A Sunrise Sector

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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 in


India include:
Aadhaar project - Unique Identification Authority of India has a target to
enrol 600 million citizens by 2014; over 46 million enrolments have already
been done until August 2011. A combination of Smart card and Biometric
technology shall be put into use.
Jawaharlal Nehru Solar Mission has set an ambitious cumulative target of
generating 20,000 MW of solar power by 2022. As part of this strategy, the
Government has mandated that each solar or photovoltaic (PV) module placed
into use must carry an RFID tag, so that it can be easily identified and tracked
throughout its useful life.
National Highways Authority of India (NHAI) has mandated the use of RFID
technology for toll collection across all of its 100+ toll centers through an
electronic toll collection (ETC) system.
Issuance of Smart Card-based Drivers license and Registration Certificate in
many states to ensure uniformity and inter-operability across the country.
Continually expanding mobile penetration and the growing preference for multi
SIM mobile phones is catapulting the demand for smart cards in the SIM market.
Similarly evolving compliance for EMV cards is expected to usher higher growth
in the smart cards segment.
The Commerce Ministry and Drugs Controller General of India (DCGI) have
mandated that 96 Pharma products come under track and trace umbrella by
2011 to help control the entry of counterfeit medicines in the market and assist
the enforcement teams in carrying out faster checks.

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AIDC Market in India A Sunrise Sector

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MARKET DRIVERS AND RESTRAINTS


Factors enabling and disabling growth in the AIDC market are represented in the
chart 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 programs
as well as demand from the banking, hospitality and telecom segments, to name a
few. Efforts taken to create awareness of AIDC technology and its benefits amongst
users 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 more
glorious growth for the AIDC markets in the country. Some of these are detailed
below.
Chart 5: Areas needing Improvement in the AIDC industry in India

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AIDC Market in India A Sunrise Sector

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Lack of Financing Models


Since the AIDC Industry is still at a nascent stage, the scale of projects may not be
that high; consequently, financing options are lacking. This is particularly true in
cases where a customer would seek to try out AIDC technology first and then
evaluate a possible full-fledged roll out for its remaining departments. There is also
a need for companies to offer ccustomized ROI frameworks thereby reducing
opportunity costs and lowering liabilities.
Absence of a local manufacturing environment
Low yield manufacturing volumes for producing AIDC hardware in India, result in
the need to import or procure AIDC hardware or technology, which adds up to the
costs. This in turn leads to higher project costs along with longer delivery cycles to
implement an AIDC solution with long gestation periods to justify Return on
Investment. There is also a lack of framework from the Government circles that can
encourage indigenous production. Also high cost of manufacturing sensors has
fuelled 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 and
decent competency levels in the country, size and complexity are the biggest
challenges 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 shy
away from adopting high-end AIDC technologies in spite of the known fact that
barcodes would invite line of sight, for which manual intervention, in the form of
labor would be required. Hiring manual labor as against investing in high-end
technology may prove to be a cost effective option.
Outlook
The massive population in India and the on-going Government drive for numerous
welfare and ID programs portend a strong future for the AIDC industry in India. Be
it UID or NREGS or RSBY or any central/state program, AIDC technologies are
expected to be in demand at various stages of implementation. The Department of
IT, Ministry for communication has identified a couple of AIDC technologies as
those with significant potential in the domestic market and is encouraging R&D in
these technologies for indigenous development of products that shall be used in the
various identification programs in the ensuing years. Private sector is also buoyant
about the opportunities for AIDC which is evinced from their increasing
investments in product development, manufacturing facilities as well as branding
activities. The chart below depicts the outlook for the AIDC industry in India.

2011 Frost & Sullivan

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AIDC Market in India A Sunrise Sector

Chart 6: Outlook for the AIDC industry in India

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ABOUT FROST & SULLIVAN


Frost & Sullivan enables clients to accelerate growth and achieve best-in-class positions in growth,
innovation and leadership. The company's Growth Partnership Service provides the CEO and the CEO's
Growth Team with disciplined research and best-practice models to drive the generation, evaluation,
and implementation of powerful growth strategies. We leverage 50 years of experience in partnering
with Global 1000 companies, emerging businesses and the investment community from over 40 offices
on six continents.

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