[kotak] gamechanger - e governance, may 2013€¦ · digitization will make it easier to track...

Akhilesh Tilotia, [email protected]

Mumbai: +91-22-6634-1139

E-EXPRESSWAYG2B and G2C interactions are increasingly electronic E-RECORDS…of you, your rightsand your fights E-TAX AND E-CASHGovernment takes andgives in e-cash E-MARKETPLACESIndia’s success stories GAMECHANGERSIncrease bandwidth;free data; involve citizens

GAME CHANGER

1KOTAK INSTITUTIONAL EQUITIES RESEARCH

GAME CHANGER

ForewordThe Indian Government is increasingly coming closer to its

citizens and businesses. Power brokers who would work

their way through the Government system are giving way

to professionals who help the masses to connect with their

Government through a digital system.

Across several business and citizen services, the interface

is digital. This not only makes for smoother transactions, it

also provides a great deal of data and electronic trails. E-data

is helping the Government to improve its services and to

enforce compliance. Three big digitization programs are

taking place: (1) identity of Indians, (2) interaction portals of

Government agencies and (3) money transactions (cash and

property). The changes are transforming the way Indians and

its Government interact. Expect ease of doing business in

India to improve dramatically.

2 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Contents

E-expressway: G2B and G2C interactions are increasingly electronic ....................03

E-records of you, your rights and your fights...........................................................09

E-tax and e-cash: Government takes and gives in e-cash............................................15

E-marketplaces: India’s success stories...................................................................25

Gamechangers: Increase bandwidth; free data; involve citizens.................................31

Appendix: A transparent world, governed by rule of law..........................................35

For Private Circulation Only. In the US, this document may only be distributed to QIBs (qualified institutional buyers) as defined under rule 144A of the Securities Act of 1933. This document is not for public distribution and has been furnished to you solely for your information and may not be reproduced or redistributed to any other person. The manner of circulation and distribution of this document may be restricted by law or regulation in certain countries, including the United States. Persons into whose possession this document may come are required to inform themselves of, and to observe, such restrictions.

GAME CHANGER

3

India, which has emerged as the global hub of the IT industry, has

been late in leveraging IT for local governance. As India moves into

an era of rights, Indians are waking up to a government that needs

to be more accessible and accountable. These traits are difficult

to obtain in a paper-based world; a virtual world where both

interaction and money are digitized makes the task of making

the government accountable much easier. Most important, it

dispenses with the regime of the “maai-baap sarkaar” (a poor

translation: paternalistic government).

Chapter 1E-expressway: G2B and G2C interactions are increasingly electronic


E-way: electronic expressway energizes India

India has long been chastised for its low ranking in various surveys and reports that document how easy

or difficult it is to do business in a country. That scenario is rapidly changing. India is creating an impressive

digital framework for the Government to interact with its citizens (G2C) and businesses (G2B); even

Government-owned businesses now have interfaces that have improved significantly.

Over the last decade India has instituted several rights-based legislations, including rights to education

and work and is now considering legislating on the right to food. (1) Reaching the correct and intended

beneficiaries of these rights, (2) ensuring the appropriate delivery of benefits and (3) escalation and

resolution of grievances is now critical, as the laws give citizens the right to drag their government to

court if it fails to deliver. Coupled with the right to information (RTI) and the (right to file) public interest

litigations (PIL), the Indian citizen is significantly more empowered now than a decade ago.

Laying claim to these rights – and Government services in general – is progressively being made easier as

(1) the digitization of identities of Indians, (2) their online access to the service-provider institutions

(financial and with Government agencies) and (3) the spread of the internet and mobile phones moves

ahead rapidly. In an earlier GameChanger report, M2: Mobile Money, we highlighted how money in India

is turning, not just digital, but mobile. Digitalization of money coupled with the digitization of information

(such as identities, and entitlements) make for a formidable combination. Exhibit 1 provides a pictorial

overview of how the introduction of digitization is helping to change interactions between governments

and citizens/businesses.

Why is digital governance important?

Digital governance is important from several perspectives.

• Creating, maintaining and upholding various rights. Indian citizens and consumers are increasingly

moving towards a digital record of their identities, existence, properties and disputes. A digital

existence, which is easier to verify and/or prove, can eliminate issues of ghost beneficiaries and lost

existences. Interaction with enforcing agencies like the judiciary or police and grievance redress via

regulators or consumer courts is improving as people can access these mechanisms with more ease and

track their progress without need for intermediaries.

• Enhancing accountability and transparency. Digital records are portable across the country,

and unlike its paper cousin, changes made in digital records can be tracked more easily. Authorities

responsible for delivery can be accessed, issues escalated and resolutions recorded and later made

public, if required. In many cases, the Government is helping to develop skilled professionals who can

help citizens to use digitization to its fullest, for example in IT e-filing.

• Improving policy making. Digitization will make it easier to track important changes in the structure

and prosperity of the Indian population—its demographics, education, skilling, migration, asset-

ownership, taxability and consumption patterns will be readily available for analysis and policy making.

Drawing correlations between various databases of its citizens will allow the Government – and indeed

businesses and analysts – to recommend and make better policies.

(1) The

digitization of

identities of

Indians,

(2) their online

access to the

service-provider

institutions

(financial and

with Government

agencies) and

(3) the spread of

the internet and

mobile phones

is changing the

governance of

India


GAME CHANGER

Exhibit 1: The digital interaction between the citizen/business and Government has improved meaningfully

A digital device in the middle makes for a rule-based system

Source: Kotak Institutional Equities

CITIZEN / BUSINESS

INFORMATION

SERVICEGOVERNMENT

BANKS

INFORMATION

SERVICE

INFORMATION

SERVICE

CITIZEN / BUSINESS GOVERNMENT

BANKS

Difficulty to keep track of delivery and escalation

Data captured in analog, paper-work prone to mistakes, easier to skip queues

!

Reconciliation was a challenge

!

Involves a 2 step process1) send money to the bank2) give receipt to the government

!

In some cases the system required cash to transact

Reconciliation is easy and cash requirements eliminated

As data builds up electronically, it gets easier to compile and analyse for trends and accountability

Identities are being digitized making identification easier

!

!

Easy online interface with defined data requirements: limited human interaction

Service can be benchmarked and tracked online

Old non-digital system

New digital e-governance plan


Where have the interactions improved?

We note some activities in which there has been a significant change in G2B and G2C interactions over the

past few years. Exhibit 2 offers a glimpse of a few aspects that have seen significant change in the recent past.

Exhibit 2: G2B and G2C interactions have changed meaningfully for the better

Sample list of G2B and G2C interactions

Interaction Portal or authority

G2B interactions

Starting a company Online process at Ministry of Corporate Affairs www.mca21.gov.in website to register a company, get a name, etc.

Filing taxes Online tax filing for both direct and indirect taxes Different portals for direct and indirect taxes

Resource auctions Auctions are now electronic and anonymous Various portals/systems for different ministries like coal and telecom

Procurement Government procurement now takes place via www.eprocure.gov.in online bidding

G2C interactions

Voting Electronic voting machines (EVMs) mean quicker, EVMs run by an independent Election more accurate and tamper-proof counting of votes Commission

Filing taxes Online filing of income tax; quicker processing and refund https://incometaxindiaefiling.gov.in

Land records Digitized agri-land records including ownership, Various state portals cropping patterns and encumbrances

Railway tickets State of the art website with easy booking and www.irctc.co.in cancelation options

LPG cylinders Online/IVR booking of LPG gas cylinders Transparency portals of the three leading PSUs: BPCL, HPCL, IOCL

Passports Online application and appointment management www.passportindia.gov.in system

Various civil records Birth, residency, marriage, caste, etc certificate can Each state/city has a separate portal now be applied for and paid for online

Source: Kotak Institutional Equities

• Tax filing and returns. Out of 34 mn people who filed taxes in India in FY2013, some 22 mn (or

about two-thirds) filed online. Filing a paper-based tax return used to be accompanied by long delays in

assessments and refunds. The current process offers an online opportunity to check (1) the tax that has

been deducted by various parties on a tax-payer’s behalf (Form 26AS) and (2) track the refund status.

Typically, for individual assessees filing online, refunds for a financial year ending March usually come

by November. It is now mandatory for anyone declaring an income of greater than Rs0.5 mn to file

taxes electronically. It is estimated that there are 1.8 mn people whose incomes are in the Rs0.5-1.0 mn

range; and a similar number declares incomes above Rs1.0 mn.

• Voting in general and state elections. India, the world’s largest democracy, runs a very efficient

election system. Casting a vote is an electronic affair and hence tabulation of votes and compilation of

results takes place quickly and with authenticity. Typical vote counting starts at eight in the morning on

the day of counting, and most often, is complete by the afternoon—quite a feat in a country in which

more than 700 mn people are expected to cast their votes (in the upcoming 2014 general elections).

• IRCTC or the largest e-commerce portal in India. The Indian Railways’ ticket-booking site has

wowed many users: In FY2012, Indian Railways booked 116 mn tickets, amounting to ~Rs95 bn, with

the daily run-rate now going beyond 0.4 mn tickets. To put this in perspective, the current largest

private online store is estimated to have had FY2012 revenue of around Rs5 bn.

Many G2B and

G2C interactions

have moved

online over the

past few years


GAME CHANGER

• Getting a gas cylinder. This has been an item on the “reforms” list of investors with respect to its

pricing. However, booking a gas cylinder in India has never been easier and what is more, the cylinder

actually turns up at home in two or three days’ time. Besides, the consumer gets updated text messages

from the company on the booking and delivery status. And now, anyone can check how many cylinders

have been consumed and what the subsidy by the Government is: Indian Oil, HPCL and BPCL all have

their own “transparency portals” with many details. With these “transparency portals” in place, it will

be easy to implement policy action to cap the cylinder subsidy.

• Land records. This one has been a personal favorite for GameChanger and a portal site of the

Department of Land Records, Government of India can take you to the sites of various state

governments (like Chhattisgarh, Karnataka, Uttar Pradesh among the larger states) which have digitized

land records. From the perspective of industry, this will make way for easier land acquisition (land title is

said be one of the more important causes of delay) while from the perspective of the land owner, it will

make his/her property right more secure and verifiable.

• Starting a company. Starting a company, filing its returns or finding information on other companies,

is now all online. As late as in the 1990s or early 2000s, a trip to the Registrar of Companies

was mandatory to look up data filed by companies: finding a relevant record and then getting it

photocopied could take as long as a day. Anyone can now do it online for nominal sums of money, paid

by credit card, and get a PDF instantly.

We note that these are only some examples of common services for individuals that have markedly

improved over the past few years. The key element has been digitizing one or multiple processes: whether

it is the information or the money aspect that has been digitized, it leads to meaningful efficiency gains and

better customer experience. The triggers for these changes have been political, fiscal, economic or simply,

delivery of better governance!

No panacea but quite a strong medicine

Digitization is not a panacea for the ills of bureaucracy and red tape, in India or anywhere else; it however

does provide meaningful advantages. There can still be willful errors of omission and commission in

designing of benefit schemes or a restriction of access to relevant auctions. The solutions in many cases

will be (1) further digitization, (2) open access to Government services and (3) release of electronic data

on transactions/interactions. We believe that as people learn the outcomes of repeated interactions with a

rule-based system their behavior will be molded accordingly.

The triggers for

these changes

have been

political, fiscal,

economic or

simply, delivery

of better

governance!


India had become used to the concept of power-brokers who can offer to change the system rather

than promote healthy competition while maintaining the design of the system. As interactions within

governments get digitized, the need to follow rules – and in due course, laws – will become essential. A

simple example of change in behavior is a meaningful decline in the number of railway-ticket agents who

could offer to get tickets. Exhibit 3 shows the phenomenal increase in the tickets now booked online: It

is estimated that this accounts for 40-45% of all tickets sold by Indian Railways. The power has moved to

the consumer rather than remaining with the intermediary – note that the average price of tickets sold has

been falling, indicating that short-distance travelers are also buying their tickets online.

Exhibit 3: More than 100 mn tickets were sold online annually by Indian Railways

Number of tickets booked on Indian Railways' website, March fiscal year-ends, 2006-12

Tickets Growth Sales Average price

(mn) (%) (Rs mn) (Rs)

2006 3 3,170 1,268

2007 7 172 6,780 997

2008 19 178 17,000 899

2009 44 133 38,830 883

2010 72 63 60,110 836

2011 97 35 80,070 826

2012 116 20 94,980 818

Source: An RTI query reported in the Economic Times, KIE analysis

Even as digital literacy remains an area on concern, it is no more debilitating for the common man than

the illiteracy he faced when opaque systems prevailed. The increasing spread of education and of access

(computers, laptops and most important, mobile phones) means that basic operations can easily be

mastered by intermediaries who know how to work the computer system rather than those who know

how to work the government system.

There are concerns about the ability, and in some cases, intent of the Indian Government (whether as itself

or of employees who have access/authority) to handle these large online databases. Privacy concerns have

been raised in the past: whether it is when the Government wanted to promote a unique ID program or

when the oil companies made data on the number of subsidized cooking-gas cylinders used by people;

indeed there are portals now where it is possible to see the registered owners of properties or various filings

by private companies and partnerships.

An element that should provide comfort, however perversely, is that many of these digitized systems are still

silos with interfaces that work only for a particular function or department that they have been designed

for. Over time however many of these systems can, and will, be linked. For example, in the financial services

industry PAN (the permanent account number issued by the Income Tax Department) has become the

unique identifier. Across other sectors, the UID may serve as the unifying link.

India had become

used to the

concept of power-

brokers who can

offer to change

the system

rather than

promote healthy

competition while

maintaining the

design of the

system

Now the power

has moved to

the consumer

rather than

remaining with

the intermediary

These digitalized

systems are

still silos with

interfaces that

work only for a

particular function

or department


GAME CHANGER

9

State governments now offer electronic registration and records

of birth, citizenship, education, marriage and death, among other

civil records. States are also implementing digitization of land

records with the ultimate aim of moving to a Torrens land record

system. As revenue departments are digitized and property tax

becomes an important source of revenue, records of land and

property are becoming available online. Judicial records are also

online. The missing piece, thankfully (?), is the interaction between

the databases.

Chapter 2E-records of you, your rights and your fights


E-records of you: It’s not just UID!

The first aspect of digitization is the coming online of the Indian identity. The most visible face of this is

the Unique Identity (UID) that is being rolled out across India. As we will note in the next chapter, most

Indians are expected to have their IDs online and biometrically recorded by the end of FY2014. However,

even before the UID came into existence, Indians have looked up to their Government to provide them with

documents of identity. Most of the states now have their own e-sewa (electronic help) portals, which assist

residents in accessing of various services electronically.

Aspects that require interaction between a resident and the state involve those that certify his/her

existence (birth, domicile, caste, residency, senior citizenship) or demise; his/her economic status (below

the poverty line, ration cards); or simply his/her mode of transport (driving licenses, vehicle registrations,

bus and train passes) or lifestyle (drinking permits). In many states, the local state government provides

basic infrastructure facilities like water and electricity and hence records of such bills indicate not just the

amounts due but the existence and residence of a person. Across various trades, citizens and businesses

require permanent and periodic licenses with respect to business continuation, local taxation, health,

cleanliness and employment.

In many cases, the governments, or government-run enterprises, are withdrawing (say, from providing

telecom or television services). However, most of the avenues of interaction of the citizen with its

government will continue even as the rules for them may become easier or harsher (local taxation, business

continuation). We note that in many cases, states have a differing cultural and economic approach to

issues (say, on rules for alcohol consumption). While there may be a reduction in interaction in some cases

as governments withdraw, the “customer experience” will improve as the quality of interaction with a

government improves. This is also being aided by digitization of the interaction—reduction in physical

contact reduces the chances and quantum of “speed money”.

Typically the department for each of these services sits separately in a state administration set-up. This

means that even as some or most of these services are now digitized, they are unable to “speak” with

each other. UID can and will eventually provide the link to the various identities that Indians carry. If the

databases of various departments speak with each other, they can create a comprehensive profile of every

Indian.

E-records of your property rights

Hernando de Soto, an acclaimed Peruvian economist and the author of The Mystery of Capital, points out

that many small entrepreneurs lack legal ownership of their property, making it difficult for them to

(1) obtain credit to expand or (2) sell their business when either they or their businesses have run the

course. The existence of such massive exclusion generates two parallel economies: legal and extra legal.

An elite minority enjoys the economic benefits of the law and globalization, while more entrepreneurs are

stuck in poverty, where their assets languish as dead capital. India, with its 120 mn cultivators and 8.5 mn

retail (mom-and-pop) outlets, requires strong land title records to help these entrepreneurs to prosper and

gain benefits of economic growth.

Aspects that

require interaction

between a

resident and the

state involve

those that certify

his/her existence

or demise; his/her

economic status

or simply his/her

mode of transport

or lifestyle

Reduction in

physical contact

reduces the

chances and

quantum of

“speed money”


GAME CHANGER

A. Digitizing land records and the move to the Torrens system

The Department of Land Records, Ministry of Rural Development, has released a draft version of the Land

Titling Bill, which seeks to provide the establishment, administration and management of a system of

conclusive property titles through electronic registration of immovable properties. This will be a “model

law” for consideration by states to implement as land is a state subject. The bill envisages creation of

authorities at the local, district, state and national levels. It provides for a mechanism to invite objections

and for the resolution of disputes through special tribunals. We note that currently ~80% of disputes

before high courts are “civil” (as opposed to “criminal”) with most of them having roots in land disputes.

The Torrens system works on three principles: (1) the Mirror principle:the register (Certificate of Title)

reflects (mirrors) accurately and completely the current facts about a person's title, implying that if a person

sells an estate, the new title has to be identical to the old one in terms of description of land, except for

the owner's name, (2) the curtain principle: one does not need to go beyond the Certificate of Title as it

contains all the information about the title and (3) the Insurance principle: this provides for compensation

of loss by the State if there are errors made by the Registrar of Titles.

• Karnataka’sBhoomimodelasuccess;manyotherstatesdigitizelandrecords

Bhoomi, Karnataka’s digitization initiative, has computerized 20 mn records of land ownership of 6.7 mn

farmers in the state. A printed copy of the Record of Rights, Tenancy and Crops (RTC) can be obtained

online by providing the name of the owner or plot number at computerized land-record kiosks in 177 taluk

offices, for a fee of `15 (see Exhibit 4). A farmer can check the status of a mutation application on touch-

screen kiosks, which if not completed within 45 days can be escalated. Requests are handled strictly on a

first-come-first-served basis, eliminating preferential treatment and discretionary powers of civil servants.

Operators of the computerized system are made accountable for their decisions and actions by using a bio-

login system that authenticates every login through a thumbprint.

Exhibit 4: Digitized land records are more legible - and also reduce the importance of the local patwari

Land records before and after Bhoomi implementation in Karnataka

Source: Bhoomi project, Karnataka

A recent update by the Bhoomi team indicates 150 mn Bhoomi transactions took place where farmers

picked up their title deeds and registered changes. Annually the team estimates 5% of land records mutate

(change of ownership either due to sale or inheritance): this corresponds to 1.2 mn mutations a year.

The Land Titling

Bill seeks to

provide the

establishment,

administration

and management

of a system

of conclusive

property titles

through electronic

registration

of immovable

properties

A printed copy

of the Record of

Rights, Tenancy

and Crops

(RTC) can be

obtained online

by providing

the name of

the owner or

plot number at

computerized

land-record kiosks


Many other states have taken on the task of digitizing land records or processes associated with it.

Chhattisgarh, Maharashtra, Uttar Pradesh are among larger states where land records are available online.

In some cases, records also include geo-tagging and photographs of properties (this helps to apply proper

valuation frameworks for stamp duty/property tax collections). Many states also capture the plantations

made by agriculturalists on the land. Exhibit 5 details the status of land-record digitization across states.

Exhibit 5: Various state governments are progressing briskly towards land-records digitization

Status of land-record digitization across Indian states

Whether hand Whether legal Whether ROR Whether map written record sanctity given to available on available onState discontinued computerized ROR web Website address web Date

Assam Yes Yes Yes http://10.177.15.67/webdharitree No Jan 18, 2012

Bihar No No No No Jan 18, 2012

Chhattisgarh No Yes Yes http://cg.nic.in/cglrc Yes Mar 28, 2012

Goa Yes No Yes http://dslr.goa.nic.in No Jan 18, 2012

Gujarat Yes Yes No No Jan 18, 2012

Haryana No Yes Yes http://www.jamabandi.nic.in No Jan 18, 2012

Himachal Pradesh Yes Yes Yes http://admis.hp.nic.in/himbhoomilmk No Jan 09, 2012

Karnataka Yes Yes Yes http://bhoomi.karnataka.gov.in/ No Jan 18, 2012 landrecordsonweb

Kerala No No No No Jan 19, 2012

Maharashtra No Yes Yes http://mahabhulekh. No Jan 18, 2012 maharashtra.gov.in

Sikkim Yes Yes No No Jan 18, 2012

Tamilnadu Yes Yes Yes http://taluk.tn.nic.in/eservicesnew/ No Jan 31, 2012 home.html

Tripura Yes Yes Yes http://tsu.trp.nic.in/jami No Feb 03, 2012

Uttarakhand Yes Yes Yes http://devbhoomi.uk.gov.in No May 26, 2012

Uttar Pradesh Yes Yes Yes http://bhulekh.up.nic.in No Jan 18, 2012

West Bengal Yes Yes No No Feb 16, 2012

Total 11 13 11 1

Source: National Land Records Modernization Programme, Department of Land Resources

• Linkinglandrecordswithregistrationsandencumbrances

The current system relies on a wide network of sub-registrar offices (see Exhibit 6) that typically work in

offline, paper-based environments. The Government is working at having all the land records online and

ensuring that each encumbrance/right is recorded electronically.

Many states have

taken on the

task of digitizing

land records

or processes

associated with it


GAME CHANGER

tExhibit 6: Meaningful progress in registering land records online

Details of computerization of Sub-registrar offices, January 2013

Land records and registration offices

Number of Sub-registrar Offices (SROs) 4,407

Computerization

Total number of SROs computerized 2,915

States/UTs in which computerization is completed 24

States/UTs in which computerization partially is completed 3

Documents

Number of documents registered per annum across all SROs (mn) 30

States/UTs in which e-stamping services are available at SROs 8

States/UTs in which integration of land records and registration is complete 8

States/UTs in which integration of land records and registration is under progress 1

Source: Department of Land Resources, Ministry of Rural Development

There are multiple aspects of digitizing land-records. Some of them are: (1) all systems related to land

should ’talk’ to each other electronically, (2) physical interface with the citizen to be reduced, thereby

reducing the importance of middle-men and power-brokers, (3) registration should be possible anywhere in

the state (land being a state subject) and (4) all documents creating encumbrance/right on land need to be

compulsorily registered.

Linking land records with registration (of both sale and mortgages) will help to ensure that the land records

remain updated and the city or state does not lose revenue associated with such a sale or mortgage

(typically, stamp duties account for a large proportion of a city’s/state’s revenue). Earlier studies (McKinsey

report on urbanization in India) indicated that property taxes, properly implemented, can help cities to raise

US$15 bn a year.

States like Gujarat and Delhi, among others, have digitized the registration process. Process improvements

like getting an appointment time are also touted as big wins (anyone who has registered documents will

appreciate how helpful getting a time slot is!). Cities like Mumbai and Gurgaon are implementing the

e-payment option for stamp duties, registration fees and search fees. Assessments can be generated online

and money can, in some cases, be paid online directly into the Government Receipt Accounting System,

which then offers proof of payment to the government body, bank and registering individual/business.

B. Financial assets are being significantly digitized

Indian stock exchanges and depository participants run one of the largest dematerialized trading platforms

in the world. Banks are prioritizing their digital banking through the internet and mobile phones. Insurance

companies sell quite a few plans online with the internet becoming one of the fastest growing channels

for selling “term” and general (car and travel) insurance products. Mutual funds offer to buy and sell units

online without commissions. Even the Government-run Employees Provident Fund Organization has a

portal that shows updated balances in accounts of employees.

The gateway to the financial world in India is through a Permanent Account Number (PAN). These asset

classes require an investor to be registered with the Income Tax Department and the PAN serves as a unique

identifier and record-keeper across transactions. PAN may eventually be linked with UID, which will allow

the financially-excluded entry into the financial world.

Linking land

records with

registration (of

both sale and

mortgages) will

help to ensure

that the land

records are

updated and the

city or state does

not lose revenue

associated with a

sale or mortgage

Financial assets

require an

investor to be

registered with

the Income Tax

Department and

the PAN serves as

a unique identifier

and record-

keeper across

transactions


E-records of your fights: Judicial records

Indian courts (especially the Supreme Court of India and the high courts) are significantly digitized. This

means (1) the filing of cases and basic cross-checking of facts, (2) the “cause lists” (the schedule of when

cases will be heard, in what order and in which court), (3) the status of pending cases and (4) judgments in

concluded cases are all now available online.

The process of reaching the court and its proceedings are now online: the linking of various litigants, using

a unique ID, is still missing and so are any MIS on the number and type of cases pending and concluded,

typical litigants, and the average duration of cases. As more data begins to be available on this topic, the

common man can better appreciate the working of the judiciary.

Carrot and stick approach required – just like in urban reforms

The Central Government should use a carrot approach to get states to implement digitization, just like it

did with the Urban Land Ceiling Act (for example, by making the disbursal of JNNURM funds conditional on

the repeal of the Act). More important, success stories, which indicate the potential of revenue generation

for the Government, will prod this along.

The missing piece, thankfully, is the interaction between various databases, which still allows the average

Indian a modicum of privacy from the prying eyes of the state. Eventually the various segments of the

Government will start ’talking’ to each other digitally – while that will help to profile Indians better, there

are valid concerns regarding the benefit that such profiling may offer. Even as these concerns remain, India

would do well to first get its multitudes online and get various services online, as well.

Indian courts

(especially the

Supreme Court

of India and

the high courts)

are significantly

digitized

Success stories,

which indicate

the potential

of revenue

generation for the

Government, will

prod digitization

along

GAME CHANGER

15

GAME CHANGER

15

The digitization of direct and indirect tax functions has simplified

the filing of records, maintaining compliance and getting tax

refunds. Electronic filings also make it easier to track non-

compliance and tax evasion by mixing and matching various

databases. Considerable effort is being put in designing a GST

portal and its IT infrastructure. On the tax-spending side, the UID-

Aadhar-based payments system is being created as a platform, on

which various applications of benefit transfer will rest.

Chapter 3E-tax and e-cash: Government takes and givesin e-cash


Filing returns online

As information and money get digitized, it is becoming easier to tax the two non-digital entities: (1) people

(individuals or companies) and (2) goods and services. Earlier (1) the activities of economic actors, (2) their

tax returns and (3) their money were paper-based. This made it difficult to match the economic activities

with the money trail: A paper-based trail was, by sheer magnitude of work involved, available only for

sample checking and understanding process-robustness. Digitization allows comprehensive checking,

pattern recognition and more important, leaves a trail of data that can be correlated across entities and

over time.

Indians now primarily file their taxes online; out of the 34 mn people that filed their income taxes with the

Government in FY2013, 22 mn did so electronically (see Exhibit 7). Across direct and indirect taxes, there

are now unique and electronically linked identities for each taxpayer and an elaborate system of matching

various transactions by the taxpayer through the year.

Exhibit 7: Online tax filers have increased 10X over the past five years

Number of online returns filed, March fiscal year-ends, 2008-13 (mn)

0

5

10

15

20

25

2008

2009

2010

2011

2012

2013

Source: Income tax department, Government of India

Web of information on direct taxes

Direct taxes require a unique PAN registration with the Income Tax Department. This number serves as a

common identification tool across financial institutions (like banks, mutual funds and insurance companies)

and helps to reconcile transactions between a deductor and “deductee” (say an employer to an employee

or a customer and a vendor). Tools available on the income tax website allow a tax payer to know the

incomes/investments that have been reported against his/her name and the amount of tax deposited on

his/her behalf.

The Government is working to match tax records with its databases. Excerpts from two press releases make

this very clear and provide significant information on the numbers of tax-payers in India and various high-

value transactions undertaken by them (see Exhibit 8).

As information

and money

get digitized,

it is becoming

easier to tax the

two non-digital

entities:

(1) people

(individuals or

companies) and

(2) goods and

services

Out of the 34

mn people that

filed their income

taxes with the

Government

in FY2013,

22 mn did so

electronically


GAME CHANGER

Exhibit 8: Profiling of an individual by the tax department now draws data from various databases

Various databases in use by Government of India in profiling its taxpayers and citizens

Start from PAN or Name or Mobile

Other matters of interest

Identity particulars?

Income details?

Prepaid taxes?

Lineal ascendants / descendants?

Siblings?

Persons with common address?

Investments / Expenditure

Partner in firms?Director in companies?

PAN

PAN

PAN

PAN

AST

OLTAS

e-TDS



CIB dataAIR data STT

Source: Income tax department

Press release #1, December 10, 2012

In the assessment year 2012-13, only 1,462,488 assessees (salaried persons, HUF, professionals, firms,

companies and transporters & retainers) filed their returns disclosing taxable income of over Rs1 mn. Any

fair-minded person will agree that this is a gross under-statement.

We know that –

• 1,600,746 persons made payments of Rs0.2 mn or more against their credit cards;

• 1,191,037personsdecidedtopurchaseorsellhousepropertyworthRs3mnormore;

• 5,242,114personsacquiredmutualfundsofRs0.2mnormore;bondsordebenturesofRs0.5mnor

more; shares issued by a company of Rs0.1 mn or more; bonds issued by RBI of Rs0.5 mn or more;

• 3,383,276persons made cash deposits aggregating Rs1 mn or more in the savings bank account.

One of course needs to take into account that the tax structure in India (as elsewhere) is on income; if

someone has cash deposits/investments of a large amount, that may not always mean the person has

earned the income in that particular year. Renewing a fixed deposit, for example, cannot count as income

for a particular year.

The press release below documents various systems that tax authorities use to profile assessees.


Press release #2, February 11, 2013

The Directorate of Systems of the Income Tax Department has undertaken a business-intelligence project

to identify PAN holders who have not filed Income Tax returns and about whom specific information is

available in 148 information codes of Annual Information Return (AIR), Central Information Branch (CIB)

data and TDS/TCS returns. Information in the Cash Transaction Reports (CTRs) of FIU-IND has also been

included as part of this data-matching exercise. This data analysis has identified a target segment of

1,219,832 non-filers, linked to more than 47 mn information records. Rule-based algorithms have been

used to identify high-priority cases for follow-up and monitoring.

In the first batch, letters are being sent to 35,170 PAN holders by the Directorate of Intelligence and Criminal

Investigation. The letter contains the summary of the information of financial transaction(s) along with

a customized response sheet and seeks to know whether the person had filed his Income Tax return or not.

A nodal cell has been set up to capture the response and take follow-up action. There will be an online

monitoring system to ensure follow-up action and track return filing and tax payment of the target segment.

Indirect taxes: IT infrastructure in place for rollout

As the rollout of Goods and Service Tax is being planned, significant time and investment have gone in

getting the IT infrastructure right. The Government formed an empowered group on IT Infrastructure on

GST, headed by Nandan Nilekani, which is helping to shape the IT rollout preparation as GST is politically/

economically debated between the Centre and states. The group’s report states: “For reasons of simplicity

for the taxpayer, ease of tax administration and bringing about a national common market, a common

PAN-based taxpayer ID, a common return, and a common challan for tax payment have been agreed to by

all stakeholders.”

The basic solution architecture requires that all stakeholders (small and large tax payers, state and central

tax authorities and banks) are on the same platform for four basic activities: (1) registration,

(2) payments (called challans in India), (3) return filing and (4) inter-state input tax credits. Exhibits 9 and 10

schematically show how the flow of information and money will move across different stakeholders. We

note that the system expects to be able to catch many of the basic errors as they creep in (see Exhibit 11).

Exhibit 9: All GST stakeholders to be on a common platform - for compliance

State 1

State 2

State n

Taxpayers Banks

CBEC

CommonGST

Portal(Tax Booster)

Send challan

Uploaded challan details

CGA, AG RBI

Inter-state settlement InformationInformation Feeds

File returns

SGST returnsIGST returns

Intelligence

CGST returnsIGST returns

Intelligence

Source: Income Tax Department

All stakeholders

are on the same

platform for four

basic activities:

(1) registration,

(2) payments

(called challans in

India), (3) return-

filings and

(4) inter-state

input tax credits


GAME CHANGER

Exhibit 10: All GST stakeholders to be on a common platform financially

State 1

State 2

State n

Taxpayers Banks

CentreRBI

Deposit Taxes

Common GST Portal

SGST fundsIGST funds

CGST fundsIGST funds

Inter-state settlement Information


Exhibit 11: The Common GST Portal will eliminate basic fraud

Electronic returns and portal can identify various mistakes/fraud early

Type of fraud Intelligence based deterrence

Fraudulent bills Matching

Improper input tax credit Matching

Fraudulent use of 'exempt' rules Electronic returns

False payment proofs Electronic challans

Unrecorded sales Data mining

Misuse of composition method Data mining

Wrongful application of lower tax Data mining

Under-invoicing Data mining

Non-existent dealers Data mining


India has a large, unorganized market and many organized industries face challenges from small businesses

that avoid taxes. An electronic filing and recording system will mean that many such businesses will

show up on the radar of Government and industry associations. We expect a meaningful reduction in

the activities of the unorganized sector as the GST rollout progresses. A few years later it would not be

surprising if we see similar notices being sent by indirect-tax authorities.

We expect a

meaningful

reduction in the

activities of the

unorganized

sector as GST roll-

out progresses.

A few years later

it would not

be surprising if

we see similar

notices being sent

by indirect-tax

authorities


Benefits transfer: UID to the rescue

The system of distributing Indian subsidies has been under fire for two main reasons: (1) price signals get

distorted as prices are artificially tampered with (reduced in the case of say, diesel and cooking fuels or

increased in the case of minimum support prices) and (2) the list of beneficiaries is faulty, which causes

large-scale leakages.

Taking prices of goods back to “market” levels (allowing diesel prices to rise or MSPs to fall such that

Indian grain becomes competitive again in the world market) will require the Government to find a way

to “compensate” people who, in its opinion, require such protection. The UID project allows for unique

identification of all Indian residents: it is for Government agencies to figure out who needs to get the

benefits.

Just like in the tax-collection system, there are three elements here: (1) people who need to receive the

benefits, (2) information about the people: their eligibility and bank accounts and (3) the actual transfer

of the money. Here too, the last two aspects are being digitized. We note that the number of people

who have signed up for the UID is now reaching 350 mn and will reach 600 mn by the end of FY2014;

however, reports indicate that only a very small proportion of people have linked their bank accounts with

the UID (10 mn people may have linked their accounts at the end of April 2013). For more details, see

GameChanger Perspectives #78 and #94.

As the Government starts to make it mandatory for each agency to move benefits only through a benefits-

transfer mechanism, we may see a sudden and sharp jump in the number of people who link their bank

accounts (or open one) with their UID cards. The Government’s experiment to transfer subsidy on LPG

cylinders directly to bank accounts of beneficiaries in 20 pilot districts by June 30, 2013 should provide

some learning on how the process progresses. In a sense, LPG beneficiary identification is easy: anyone who

has a connection is a beneficiary; it may be difficult to identify a beneficiary of urea subsidy and determine

the amount due to him/her.

Over time, the UID database can link with various other databases (for example, direct taxes databases)

such that correlations can be drawn on several issues (as we will explore in the last chapter).

UID will be your primary key with the government

The Government is starting to roll out transfer of benefits through the UID system. Earlier this year, the

Government announced 34 schemes that would be channelized through UID-linked bank accounts (see

Exhibit 12).

There are three

elements here:

(1) people who

need to receive

the benefits,

(2) information

about the people:

their eligibility

and bank

accounts and

(3) the actual

transfer of the

money


GAME CHANGER

Exhibit 12: 34 schemes identified by the Government for direct benefit transfer

Demand for grants cleared in the Union Budget, March fiscal year-end, 2013 (Rs mn)

Ministry of Social Justice and Empowerment

Post-Matric Scholarship for SC Students 14,700

Pre-Matric Scholarship for SC Students 8,055

Pre-Matric Scholarship for Children of Those Engaged in Unclean Occupations 100

Upgradation of Merit of SC Students (see Note a)

National Overseas Scholarship Schemes for SC Students (see Note a) 536

Post-Matric Scholarship for OBCs 5,620

National Overseas Scholarship for OBCs (see Note b) 3,080

Post-Matric Scholarship for Economically Backward Class Students 450

Post-Matric Scholarship for Students with Disabilities 300

National Overseas Scholarship for Persons with Disabilities (see Note c) 297

Scholarship for Top Class Education for Students with Disabilities (see Note c)

Top Class Education Scheme 240

Ministry of Human Resources Development, Department of Higher Education

Scholarship to Universities/College Students (see Note d) 2,250

Fellowship Schemes of UGC

Fellowship Schemes of AICTE (see Note e) 3,610

Subsidy on Fee to Students (see Note f) 8,000

Ministry of Human Resources Development, Department of School Education and Literacy

National Means-cum-Merit Scholarship 630

National Scheme for Incentive for the Girl Child for Secondary Education 900

Ministry of Tribal Affairs

National Overseas Scholarship for ST Students 10

Post-Matric Scholarship Scheme (see Note g) 6,297

Upgradation of Merit Scheme (see Note g)

Top Class Education System 130

Rajiv Gandhi National Fellowship (see Note h) 4,832

Ministry of Minority Affairs

Matric Scholarship Scheme (see Note i) 1,260

Maulana Azad National Fellowship 630

Merit-cum-Means Scholarship Scheme 1,980

Ministry of Women and Child Development

Indira Gandhi Matritva Sahyog Yojana (IGMSY) 4,680

Dhanalakshmi Scheme 50

Ministry of Health and Family Welfare

Janani Suraksha Yojana (see Note j) 37,350

Ministry of Labour and Employment

Scholarship to the Children of Beedi Workers (see Note k) 1,600

Housing Subsidy to Beedi Workers (see Note k)

Stipend to Children in the Special Schools under the Child Labour Project (see Note l) 1,350

Permanent Disability Benefits, Dependent Benefits, Sickness State Insurance Corp to the Insured Persons and Their Families

Pension Withdrawal of PF, Premature Withdrawal of Pension, Payment Related to Employees Deposit Linked Insurance

Total (of the 34 schemes) 108,938

Source: Government of India, detailed demand for grants by various ministries


Exhibit 12: 34 schemes identified by the Government for direct benefit transfer (contd...)

Demand for grants cleared in the Union Budget, March fiscal year-end, 2013 (Rs mn)

Notes:

(a) This amount refers to Other Programmes for Welfare of Scheduled Castes. The provisions cover Upgradation of Merit of SC students, Ambedkar Foundation, Dr. B.R. Ambedkar National Centre, National Overseas Scholarship for SCs, Research & Training and meeting establishment expenditure on National Commission for SCs and National Commission for Safai Karmacharis. The provision also includes for Development of Dr. Ambedkar National Memorial.

(b) This amount refers to Other Programmes for Other Backward Classes. The provision covers for providing grants in aid to voluntary sectors to improve educational and socio-economic conditions of the OBCs. Under the scheme, 90% of the approved expenditure is borne by the Central Government and balance 10% by the voluntary organisations. The provision also covers, Post Matric Scholarship for Economically Backward Classes Students, National Overseas Scholarship for OBCs & EBCs, establishment expenditure of the National Commission for Backward Classes and Scheme of Educational and Economic Development of De-notified and Nomadic Tribes.

(c) Other Programmes for Welfare of Handicapped. This includes provision for Rehabilitation Council of India, Spinal Injury Centre, Office of Chief Commissioner for Persons with Disabilities, Artificial Limbs Manufacturing Corporation of India, Financial Assistance to Women with Disabilities to look after their Children after birth, Rajiv Gandhi National Fellowship for Persons with Disabilities and Establishment of National Institute/Centre of Universal Design and Barrier Free Environment. The provision also include for new Schemes of Top Class Education for Persons with Disabilities and National overseas Scholarships for Persons with Disabilities.

(d) This scheme is already transferred to the beneficiaries via e-banking.

(e) This amount refers to the entire budget of AICTE.

(f) This amount refers to the Educational Loan Interest Subsidy.

(g) This amount refers to Post-Matric Scholarship Scheme, Book Bank and Urgradation of Merit of ST students

(h) The provision relates to assistance to voluntary organisations for Scheduled Tribes, supporting projects of All-India or inter-State nature for Scheduled Tribes, Research and Training, support to TRIFED for retail marketing development activity in respect of tribal products, R&D, training, skill upgradation, capacity building of Scheduled Tribes artisans & Minor Forest Produce gatherers & creation of corpus fund. The provision is also for Grants-in-aid to State Tribal Development Cooperative Corporations for minor forest produce, educational complex in low literacy pockets for the development of literacy among ST girls in tribal areas, vocational training in tribal areas, Grants to Assam Govt. under clause (a) of second proviso to Article 275 (1) of the Constitution, National Commission for Scheduled Tribes, Development of Particularly Vulnerable Tribal Groups(PTGs) Monitoring and Evaluation and providing fellowships to ST students for higher education such as M. Phil and Ph. D under the scheme of Rajiv Gandhi National Fellowships for ST students.

(i) This amount includes both pre and post matric scholarships

(j) This amount refers to Rural Family Welfare Services (Sub-Centres). In order to provide comprehensive Primary Health Care Services at the grass root level, Sub-Centres are established for every 5000 rural population (3000 population in the tribal and hilly areas). The Sub-Centres have mainly promotive and educative functions relating to maternal and child health, family welfare, nutrition, universal immunization, diarrhea control, and communicable disease programmes. They are also provided with basic drugs for minor ailments for taking care of essential health needs of women and children. All the Sub-Centres are being funded by Central Government w.e.f. 1.4.2002 under the swap proposal.

(k) This refers to the full amount paid into the Beedi Workers Welfare Fund

(l) This amount refers to the entire fund for Improvement in working conditions of child woman labour

Source: Government of India, detailed demand for grants by various ministries


GAME CHANGER

We note that even a single item, like scholarship schemes, encompasses a wide variety of ministries, For the

beneficiaries this meant multiple registrations with different authorities and different periodicity and modes

of receiving the benefit. While even under the new UID method each agency will be required to identify the

right recipient, the money can be electronically transferred directly into a bank account of the beneficiary.

As more schemes are added to the direct-benefit transfer model, UID will serve as the identifying link

between citizens and the schemes. It will be easy not only to remove ghost beneficiaries (either you have a

UID or you don’t; and one UID gets only one entitlement), this will also allow cross-checking of databases:

if someone is benefitting from one scheme, possibly he/she does not need support from other schemes.

Similarly, a holistic profile of a person can be created with the Government as it electronically identifies

schemes that a particular beneficiary is benefitting from. Understanding the socio-economic status of

a person will be easier as more data is generated against every UID. Identifying “rich farmers” whose

income “should” be taxed can become easier (from a data perspective; if not from a political perspective).

Conceptually, this data can be used as a time-series to see the benefits made available to a person or a

family.

The holy grail of a UID-linked direct-benefit transfer is for the Government to be able to transfer all its

“subsidies” through the direct mechanism. We note in Exhibit 13, the total amount of direct transfer by

the Government now amounts to more than Rs3 tn a year. Being able to send benefits directly can help to

save meaningfully on leakages (some estimates peg leakages at more than 20% of the Government spend,

depending on the scheme).

Exhibit 13: The holy grail of UID and benefits transfer will be to channel the Rs3 tn of subsidies

Break-down of major subsidies by type, March fiscal year-ends, FY2007-14E (Rs bn)

-

1,000

2,000

3,000

4,000

2007 2008 2009 2010 2011 2012 2013E 2014E

Diesel Gasoline Kerosene LPG Fertilizer Food MGNREGA

Source: Government of India, Kotak Institutional Equities estimates

For the

beneficiaries this

meant multiple

registrations

with different

authorities

and different

periodicity

and modes of

receiving the

benefit

The holy grail

of a UID-linked

direct benefit

transfer is for the

Government to

be able to transfer

all its “subsidies”

through the direct

mechanism


However, this will take a significant amount of time: the banking penetration is low, with less than a

quarter of the population having bank accounts. Putting everyone on the system will require rethinking the

branch-banking model of reaching the final customer. Possibly this will require a more spruced-up version

of the business correspondent (BC) model (so that becoming a BC is profitable even at low number of

transactions/float amounts) or will require using mobile money as a way to reach the money to the right

hands. Given that a large portion of the economy is not banked, a transitory system will require India to

provide for the conversion of e-cash to physical cash and vice versa.

Understanding

the socio-

economic status

of a person will

be easier as more

data is generated

against every UID


GAME CHANGER

25

India has embraced the National e-governance Plan, which aims to

bring Government services to the doorstep of citizens. We study

the Government model of top-down planning and execution and

detail a few case studies across sectors where digitization has

made a marked impact.

Chapter 4E-marketplaces: India’s success stories


India’s experience in digitizing its interaction with its Government

India’s e-governance digitization framework is constructed in three steps: (1) There are 27 Mission Mode

projects, headed by the relevant ministry/agency; (2) State Wide Area Networks (SWANs), which take into

account goods/services in the domain of state governments and (3) Common Service Centers, which are

customer-facing end-points to reach out to citizens.

The 27 Mission Mode Projects (MMPs) seek to convert high-priority citizen services from their current

manual delivery into e-delivery (see Exhibit 14). Each MMP is owned and spearheaded by the relevant

ministry/agency of the national Government or by a state government and is called “mission mode”

because it has a definite timetable, service levels, project-implementation team and process re-engineering

plans.

Exhibit 14: The Indian Government's National e-governance plan has 27 Mission Mode Projects (MMPs)

Mission mode projects across vaious ministries

Sector MMP component

Central MMPs

Banking Some elements include (1) Electronic Central Registry under Sarfaesi Act, 2002, (2) One India One Account—for public sector banks, (3) electronic mass-payment system.

Central excise & The project aims to network 20,000 users in 245 cities using wide area network, and equip taxpayers with customs up-to-date information relating to customs, central excise, service tax laws, etc. over the internet.

Income tax (IT) Some elements include (1) allocation of Permanent Account Number (PAN), (2) tax accounting, (3) taxpayer grievance redressal, (4) taxpayer correspondence, (5) tax compliance, (6) online submission of returns, (7) processing of tax returns, (8) processing of tax deducted-at-source (TDS).

Insurance The project is proposed to be implemented through the four PSU insurance companies with the objective of (1) facilitating customer service through education, information, speedy processing of claims and online issuance of policies on the web, (2) providing automated grievance reporting and redressal facility to customers, (3) creating and enlarging business opportunities, (4) creating a holistic database of insurance users, (5) integrating insurance database(s) with other Government database(s) to analyze social security aspects and facilitate service delivery.

Ministry of The MCA21 project is designed to fully automate processes related to enforcement and compliance of Corporate Affairs the legal requirements under the Companies Act, 1956.

National Citizen The UID is intended to provide a robust basis for efficient delivery of various social and welfare services to Database persons below the poverty line (BPL). It can also be used as the basis for identifying and authenticating a person's entitlement to Government services and benefits through a single system.

Passport The project envisages setting up of 77 Passport Seva Kendras (PSKs) across India, a data center and disaster-recovery center, call center operating 18X7 in 17 languages, and a centralized nationwide computerized system for issuance of passports. The entire operation will function in a 'less paper' environment with an attempt being made to deliver passports within three working days to categories not requiring police verification.

Immigration, Visa The implementation of this MMP will enable authentication of a traveler’s identity at the Missions, and Foreigner’s Immigration Check Posts (ICPs) and Foreigners Registration Offices (FROs) through use of intelligent Registration document scanners and biometrics, updation of foreigners’ details at entry and exit points, improved & Tracking (IVFRT) tracking of foreigners through sharing of information captured during visa issuance at Missions, during immigration check at ICPs, and during registration at FRROs/FROs.

Pension (1) Non-interactive component to provide updated information on pension issues, (2) interactive component to monitor grievance redressal at three interlinked levels, as follows: (a) Central-level in the Department of Pensions & Pensioners' Welfare (nodal point), (b) central ministries/department-level, (c) pensioners' associations level (field level).

e-Office (1) To improve efficiency, consistency and effectiveness of Government responses, (2) to reduce turnaround time and to meet demands of the Citizens Charter, (3) to provide for effective resource management to improve the quality of administration, (4) to reduce processing delays and (5) to establish transparency and accountability.

State MMPs

Agriculture Information to farmers on (1) seeds, fertilizer, pesticides, (2) Government schemes, (3) soil recommendations, (4) crop management, (5) weather and marketing of agriculture produce.

Commercial taxes (1) Electronic filing of returns, (2) electronic clearance of refunds, (3) electronic payment of tax, (4) online dealer ledger, (5) online issuance of CST statutory forms through the Tax Information Exchange System (TINXSYS) and (6) facility to dealers to obtain various online information services.

India’s

e-governance

digitization

framework is

constructed in

three steps


GAME CHANGER

e-District (1) Certificates: Creation and distribution of certificates for income, domicile, caste, birth, death, etc. (2) Licenses: Arms licenses etc. (3) Public Distribution System (PDS): Issue of ration card etc. (4) Social welfare schemes: Disbursement of old-age pensions, family pensions, widow pensions, etc. (5) Complaints: Related to unfair prices, absentee teachers, unavailability of doctors, etc. (6) RTI: Online filing and receipt of information relating to the Right to Information Act. (7) Linking with other e-Government projects: Registration, land records and driving licenses, (8) Information dissemination: About Government schemes, entitlements, etc. (9) Assessment of taxes: property tax and other Government taxes. (10) Utility payment: Payments relating to electricity, water bills property taxes, etc.

Employment Ministry of Labor & Employment is conceptualizing this MMP. exchange

Land records The Land records MMP, being implemented by the Ministry of Rural Development (MoRD), seeks to accomplish the following across states: (1) Completion of all data entry related to digitization of land records, (2) provision of legal sanctity to computerized records of rights (RoRs), (3) stopping further issue of manual RORs, (4) setting up computer centers at Tehsils, (5) enabling web access.

Municipalities (1) To provide single window services to citizens on an anytime, anywhere basis, (2) to increase the efficiency and productivity of urban local bodies (ULBs), (3) to develop a single, integrated view of ULB information system across all ULBs in the state, (4) to provide timely and reliable management information relating to municipal administration for effective decision-making, (5) to adopt a standards-based approach to enable integration with other related applications.

Gram panchayats (1) Issue of trade licenses and NoC, (2) house-related services, (3) issue of certificates of birth and death, income and solvency, (4) dissemination of internal process of panchayat agenda, voting and resolution, (5) copy of proceedings of gram sabha and action taken report (ATR), (6) receipt of funds/progress report, (7) dissemination of BPL data.

Police This MMP has been included in NeGP in light of the ever-increasing threats of terror attacks and of continually ascending crime graphs. It includes aspects such as creation of and sharing of crime-related databases across departments, effective personal management and efficient inventory control.

Road transport To create a unified data scheme which could be used by all states and Union Territories to computerize their respective transport offices (for faster and better-managed issue of vehicle registration certificates and driving licenses).

Treasuries Due to non-computerization or part-computerization of state treasuries, most of the operational information continues to be exchanged in paper form. A core group on computerization of treasuries in state has been constituted to formulate a draft scheme on the treasuries MMP under NeGP.

Integrated MMPs

Common services The common services centers (CSC) are proposed to be the delivery points for Government, private and centers (CSC) social-sector services to rural citizens of India at their doorstep

e-Biz It aims at reducing the points of contact between business entities and Government agencies, standardizing 'requirement information', establishing single-window services and reducing the burden of compliance, thereby benefiting stakeholders.

e-Courts (1) To help judicial administration in streamlining their day-to-day activities, (2) to assist judicial administration in reducing the pendency of cases, (3) to provide transparency of information to the litigants, (4) to provide judges with easy access to legal and judicial databases.

e-Procurement The objectives of the MMP are (1) to establish a one stop-shop for all services related to Government procurement, (2) to reduce cycle time and cost of procurement, (3) to enhance transparency in Government procurement, (4) to enhance efficiency of procurement, (5) to bring about procurement reform across the Government.

Electronic data (1) Electronic filing and clearance of export-import documents, (2) e-Payment of custom duties and charges interchange (EDI) of ports, airports, CONCOR, etc., (3) filing and processing of licenses for DGFT, (4) e-Payment of license fee for trade (e-Trade) for DGFT, (5) electronic exchange of documents between community partners such as customs, ports, airports, DGFT, CONCOR, banks, etc.

National Acting as a standards-based messaging switch and providing seamless inter-operability and exchange of eGovernance service data across the departments. NSDG acting as a nerve centre, would handle a large number of transactions delivery gateway and would help in tracking and time stamping all transactions of the Government.

India portal To provide a single-window access to the information and services of the Indian Government at all levels from Central Government to state governments to district administration and panchayat.

Source: Department of Electronics and Information Technology, Ministry of Communications and Information Technology,

Government of India


The second tier is of the common and support infrastructure that allows information to be shared

electronically between Government agencies and citizens. Included in it are the State Wide Area Networks

(SWANs), which form the converged backbone network for data, voice and video throughout a State/UT

and the State Data Centers (SDCs), which can provide common secure IT infrastructure to host state-level

e-government applications and data.

The Common Service Centers (CSCs) are conceived as front-end delivery points for citizen services in

a transparent manner, at a convenient location and at an affordable cost. These centers also provide

employment to entrepreneurs running them, besides being useful in rolling out all kinds of governmental

schemes such as those for financial inclusion, enumeration of data, insurance and IT education.

At each stage there have been learnings: (1) MMPs are not inter-operable as each ministry/agency has gone

about digitizing the offering on its own. (2) At the level of SWANs, there have been delays, resulting in

older technology deployment, leading to slow speed of SWANs. (3) The penetration of the mobile phone in

India was not considered for services delivery of e-governance. (4) The financial viability of Common Service

Centers came into question and some were closed, indicating the need for a sustainable revenue model, or

simply a different (possibly mobile) way of reaching out to citizens.

Case Study 1: Successful e-auctioning of coal

Coal India auctions about an eighth of its production (the rest is sold through notified prices). Exhibit 15

shows that Coal India receives a significantly high price (about 2X) for its e-auction coal. The EBITDA the

company makes on the e-auctioned coal rivals the EBITDA made on raw coal in absolute terms. We note

that there is a marginal difference in the calorific value of the coal offered under both the mechanisms. The

company allows participants to bid and pay money (and receive refunds, if any) electronically.

Exhibit 15: E-auction of coal is significantly beneficial for Coal India

Volumes, realizations and EBITDA of various types of coal sold, March fiscal year-ends, 2006-14E

2006 2007 2008 2009 2010 2011 2012 2013E 2014E

Sales (mn tons)

Raw coal 275.2 290.1 331.2 336.9 354.6 361.3 362.1 399.1 402.4

Beneficated 17.7 14.2 14.5 14.9 14.6 15.5 16.9 15.4 21.3

E-auction 34.3 36.1 28.8 48.9 45.7 47.7 50.9 46.5 47.7

Total 327.2 340.4 374.4 400.7 414.9 424.5 429.8 461.0 471.4

Realization (Rs/ton)

Raw coal 812 841 926 976 1,052 1,235 1,292 1,338

E-auction 1,148 1,347 1,481 1,583 1,846 2,599 2,586 2,625

Average 845 872 968 1,075 1,183 1,443 1,459 1,510

EBITDA (Rs/ton)

Raw coal 184 155 56 177 215 186 226 237

E-auction 520 661 611 784 1,009 1,550 1,520 1,525

Notes:

(a) EBITDA/ton assumes uniform allocation of direct costs over raw coal, beneficated coal and e-auction coal.

Source: Company, Kotak Institutional Equities

At each stage

there have been

learnings:

(1) MMPs are not

inter-operable

(2) At the level

of SWANs, there

have been delays,

(3) The financial

viability of

Common Service

Centers came

into question and

some were closed

The EBITDA

that Coal India

makes on the

e-auctioned coal

rivals the EBITDA

made on raw coal

in absolute terms


GAME CHANGER

Case Study 2: Telecom spectrum auctions

Telecom spectrum auctions in 2010 created an important and interesting model of auctions. The ‘clock-

stage’ auctions coupled with ‘activity rules’, which helped to define ‘provisional winning bidders’ and ‘price

increments’ created a situation in which bidders were unaware of who was bidding but could see the value

that the others were putting on a piece of spectrum. This led to a spiraling price situation: The Government

had budgeted Rs350 bn from the auctions but pocketed more than Rs1 tn!

Case Study 3: Corporate affairs

Filing and accessing corporate records have become significantly easier since the digitization of the

corporate affairs interface. Documents that should have been easily accessible for public companies

were filed earlier in one geographical location with difficulty of search and access. A simple credit card

transaction now lays bare the details such as transactions between companies, charges or pledges and

changes in shareholder agreements.

The Ministry of Corporate Affairs initiative, MCA21 allows companies to start (and even offers to close!)

electronically and in the interim, continue to file their returns and updates online. It also allows companies

to calculate and pay their dues.

Case Study 4: e-procurement

The portal http://eprocure.gov.in hosts detailed data on various tenders on offer by the Central and various

state government ministries, departments and companies. It allows anyone to search and view tenders and

to bid for them and to know who the winners are. Various government bodies have the authority to launch

their own e-procurement portals or auction mechanisms. We have note two successful case studies of

auction of natural resources in India.

Case Study 5: Banking

Indians are moving away from checks as their primary mode of interaction with banks. Until as late as

FY2004, 99.6% of all transaction volumes with the banks was through checks but by FY2012, this had

fallen to less than 20% (see Exhibit 16). Low-value transactions still take place through checks, which

explains why the share of checks in transactions still remains at just above 50%. However, there is a steady

decline in that dimension, too. As banks prioritize their internet-enabled digital and/or mobile banking,

paper-based transactions (as represented by checks) will eventually pass into oblivion.

Documents that

should have been

easily accessible

for public

companies were

filed earlier in

one geographical

location with

difficulty of search

and access

Until as late as

FY2004, 99.6%

of all transaction

volumes with

the banks was

through checks

but by FY2012,

this had fallen to

less than 20%


Exhibit 16: The importance of checks has fallen significantly

Share in transactions and volumes of various modes, March fiscal year-ends, 2004-2012

Share in total volume Share in total transactions

Electronic Check Cards Electronic Check Cards

(%) (%) (%) (%) (%) (%)

2004 0.3 99.6 0.2 2.4 86.0 11.6

2005 3.0 96.7 0.3 4.2 83.6 12.3

2006 19.1 80.7 0.3 5.3 81.8 12.8

2007 37.8 61.9 0.3 8.7 78.2 13.1

2008 55.9 43.9 0.2 11.1 73.0 15.8

2009 61.9 37.8 0.3 14.1 67.3 18.6

2010 74.1 25.6 0.2 16.2 64.8 19.0

2011 78.5 21.3 0.2 19.3 59.2 21.4

2012 80.5 19.2 0.3 22.1 52.6 25.4

Notes:

(a) Table includes the total retail payments and customer remittances under RTGS for large value clearance and settlement.

Source: RBI, Kotak Institutional Equities

GAME CHANGER

31

GAME CHANGER

31

Digitizing India has the potential to reduce bureaucratic hurdles in

starting and running businesses in India. Making interfaces more

customer friendly, introducing and publicizing penal action and

consolidating data across platforms will make governing India

easier and possibly a lot cheaper. More important, the data that

is generated needs to be made public in a format that can be

understood by humans and machines: High-quality data coupled

with in-depth analysis can lead to significantly improved outcomes.

Chapter 5Gamechangers: Increase bandwidth; free data; involve citizens


Getting the hardware, software and bandwidth in place

An important element of the digital revolution will be the ability of the common man to access it.

(1) Hardware availability, (2) bandwidth constraints and (3) user charges remain prominent constraints even

as the Government has begun to address some of these issues.

According to IAMAI’s June 2012 report, Internet in Rural India, Community Service Centers (CSCs) and

cyber-cafes play an important part in ensuring internet access. According to the report, 57% of internet

users accessed facilities at CSCs; the average distance a person needs to travel to reach a CSC is still a high

6.6 kms even as the charge for accessing internet has fallen to an average of Rs12/hour. More availability of

hardware (for example handout of laptops in Uttar Pradesh to students who have passed Class XII exams)

not only creates awareness but also spreads the machines around.

India plans to install a broadband optic fiber network to connect 250,000 Gram Panchayats as part of the

National Optical Fiber Network (NOFN) scheme. Funded by the Universal Service Obligation Fund, the scheme

will leverage cables already laid by BSNL, RailTel and Power Grid. Industry experts suggested that it might be

a better idea to use Ka-band communication satellites rather than expensive ground-based last-mile access;

apart from being costly, this requires ‘right of way’ which suffers from the same issues and delays as land

acquisition in India. India scores very poorly on broadband availability as detailed in Exhibit 17.

Exhibit 17: India scores low on average bandwidth speeds

Average broadband speeds, 2011-12 (Mbps)

Global Rank Country/Region 3QCY2012 3QCY2011

1 South Korea 14.7 16.7

2 Japan 10.5 8.9

3 Hong Kong 9.0 10.5

32 Singapore 4.9 4.4

39 Taiwan 4.4 4.1

40 Australia 4.3 3.6

46 New Zealand 3.9 4.0

58 Thailand 2.9 3.4

71 Malaysia 2.2 1.9

94 China 1.6 1.4

112 Philippines 1.3 1.2

113 Vietnam 1.3 1.6

115 Indonesia 1.2 0.8

120 India 1.0 0.9

Source: Akamai State of the Internet report, Kotak Institutional Equities

Making the customer more demanding: Both of services and information

The Government has shown its intent by bringing various legislations on speed and digitization of services

that we discussed earlier. The consumer himself needs to get more active in demanding services and more

important, information that is generated in providing the service.

For example, knowing how long an officer took to clear a file (quite an antiquated view of the world in the

digital age) can help to identify the causes of delay. The Right to Information Act allows any one to get base

data from various Government agencies: rigorous analysis of the data can yield insights into bottlenecks.

India plans

to install a

broadband optic

fiber network to

connect 250,000

Gram Panchayats

as part of the

National Optical

Fiber Network

(NOFN) scheme

The consumer

himself needs to

get more active

in demanding

services and

more important,

information that

is generated in

providing the

service


GAME CHANGER

It is important to note that it is not only for “paid services” (like a train ticket) that digitization and data

availability should be made mandatory. In many cases, the Government spends large sums of money in

collecting data or simply providing services. For example, weather data collected from all reporting stations

or the base data generated in all NSSO surveys can be made available (either free or at a nominal charge).

Policing and healthcare data, for example, needs to be online so that facts can be verified and the status of

crime or health in a particular locality, understood.

Across several services, however, the online interface, while orderly, disciplined and less prone to corruption,

can also be more expensive than the offline world. For example, booking tickets online on the Indian

Railways website requires paying the (1) fee to the railways, (2) fee to the banking/financial intermediary

and (3) the kiosk operator/agent if the end consumer does not have his own log-in. All this raises the

cost of the ticket. Similarly, while banks want to move to electronic clearing mechanisms, checks are still

free for clearing, while the customer is charged for NEFT/RTGS transfers. Such user charges create undue

disincentive for customers to switch to online from offline transactions.

Getting the data to improve outcomes

An advantage of electronic data is that it can be analyzed more easily. Copious quantities of data can be

used to reveal patterns and analyses that were either invisible earlier or remained unearthed since the tools

to extract such information were not available.

Data needs to be proactively released by Government agencies. The open data initiative in the UK and

the US provide insights into what is possible. The UK reports 9,410 datasets across local and central

governments, covering a wide variety of fields from hydrology to schools, geology to rural affairs. The US

releases 373,029 raw and geospatial datasets and offers 1,209 tools with 172 agencies and sub-agencies

contributing (all these numbers as of May 13, 2013).

Increasingly, the idea across the world is to release as much information as is possible on the functioning of

Government agencies or public utilities. More important, such data is to be presented in machine-readable

format so that analysis is easier and faster.

Get citizens involved

Finally, it is critical to get the public to make use of the data by slicing and dicing it.

The Executive Order that the US President issued on May 9, 2013 reads: “Decades ago, the U.S.

Government made both weather data and the Global Positioning System freely available. Since that time,

American entrepreneurs and innovators have utilized these resources to create navigation systems, weather

newscasts and warning systems, location-based applications, precision farming tools, and much more,

improving Americans' lives in countless ways and leading to economic growth and job creation. In recent

years, thousands of Government data resources across fields such as health and medicine, education,

energy, public safety, global development, and finance have been posted in machine-readable form for free

public use on Data.gov. Entrepreneurs and innovators have continued to develop a vast range of useful new

products and businesses using these public information resources, creating good jobs in the process.”

Data needs to

be proactively

released by

Government

agencies. The

open data

initiative in the

UK and the US

provide insights

into what is

possible


Citizen involvement is now increasingly easier as communication technologies allow people to interact

quickly, escalate matters within the service-providing organization and to disseminate the information/

analysis to outsiders. An interesting saying in the world of “hackers” is that “information wants to be

free”; the typical response of a government on this is, “information costs a fortune” – using the processing

power of the citizenry and sundry analysts, at least the cost of converting data into information can be

widely spread.

Addressing privacy concerns

Even as we get excited about the digital revolution, it needs to be borne in mind that privacy of the

individual needs to be given due importance. There are instances of many Government sites (especially with

respect to land records) that are “open”: any one can access the dataset therein. Respect for individual

privacy will help to create a stronger stakeholder support system.

As we noted in the section on UID, the Government will have a significant amount of data on an individual

– both economic and social. It is to be noted that most of the data possibly still exists with the Government

even currently – but it is in a paper-based format, which makes it difficult to search and cross-refer.

However, a determined Government can still put together the intelligence on a particular person if so

required; finding trends and patterns in the data is currently not possible.

As data starts getting digital, more of an individual’s data will be “searchable” and can be used to make a

reasonably accurate profile of the person. Note that this will not happen just based on the data collected

by the Government as part of its taxation or social duty: Most of this data may be voluntarily provided by

the citizen or business to open social networks. Putting two and two together will be easier in the new

electronic scheme of things.

The upshot of giving up on “privacy” is that there will be significant data that can be used to see trends

and patterns that can be used in many applications: from where to build schools (check the birth rate in

each area), to where to send medical care (if reports of significant illness outbreaks occur), to where to

build infrastructure (as we give away our location or simply, our travel histories by booking online). It can

help to design better fiscal policies: if the cost of education is going up meaningfully, it might be better to

provide tax relief on it than on say, leave-travel; or it might make sense to simply stop subsidized LPG or

diesel for particular households or localities.

Depending on how securely the data is kept (or even shared within the bounds of law and privacy),

e-governance can help private entrepreneurs and businesses to develop new products and services. We

have already seen how the GPS and weather data spawned new businesses. More available data can help

in designing newer business models. Simply knowing when the farmer has come to sell his produce at a

mandi (at say MSP to FCI), for instance, can offer business intelligence to agri-processors (who can buy his

product) and to consumer goods companies (that can offer to sell him FMCG goods).

Using the

processing power

of the citizenry

and sundry

analysts, the cost

of converting data

into information

can be widely

spread

The upshot of

giving up on

“privacy” is that

there will be

significant data

that can be used

to see trends and

patterns that can

be used in many

applications


GAME CHANGER

35

The Government, as part of its National e-governance Plan,

proposes to digitize various facets of its interaction with its citizens

and businesses. Bills like

• The Electronic Delivery of Service Bill, 2011

• The Right of Citizens for Time Bound Delivery of Goods and

Services and Redressal of their Grievances Bill, 2011 and

• The Public Procurement Bill, 2012

are creating the right legal framework for time-bound

electronic-service delivery.

AppendixA transparent world, governed by rule of law


Codifying digitization and speed into law

A primary area of petty corruption in India is the interaction between the Government bureaucracy and its

citizens. This typically takes place when the Government department either (1) does not have time limits

to recognize or to address an issue raised by a citizen/business or (2) when the follow-up process for the

citizen/business is lengthy and mired in bureaucracy.

A digital world offers more possibility of controlling interaction, making them (1) time and rule-bound and

(2) easier to escalate for resolution or across society for publicity. More important, a digital world offers a

direct link between the final consumer of the good/service and the Government. This meaningfully reduces

the need for an intermediary who would earlier act as a power broker.

The Government is working towards encoding these changes into law. Three prominent pieces of

legislations (1) the Electronic Delivery of Service Bill, 2011, (2) the Right of Citizens for Time Bound Delivery

of Goods and Services and Redressal of their Grievances Bill, 2011 and (3) The Public Procurement Bill

2012, once cleared by Parliament and implemented, have potential to change the contours of interaction

between the Government and citizens.

The idea behind the bills is to provide an online/digital provision of goods and services and more important,

in a time-bound manner.

• The Electronic Delivery of Services Bill, 2011

The Bill provides that the Central Government, the state government and public authorities shall deliver

public services through electronic modes including the receipt of forms and applications, the issue of

licenses and permits, and receipt and payment of money, among others. Public authorities are required

to deliver services through electronic means within five years of the enactment of the Bill, which may be

extended by a three more years.

The Bill provides that every public authority should publish a list of public services to be delivered

electronically within 180 days of its enactment. This list should be reviewed every January and the following

notified: (1) The date by which each service will be made available electronically and (2) the manner and

quality of delivery of such services.

The Bill proposes penalties of up to Rs5,000 for officials if they fail to adhere to the norms. In case of

persistent default, the penalty may increase to Rs20,000.

• The Right of Citizens for Time Bound Delivery of Goods and Services and Redressal of their

Grievances Bill, 2011

The Bill seeks to confer on every citizen the right to time-bound delivery of specified goods and services

and provide a mechanism for grievance redressal. The Bill makes it mandatory for every public authority to

publish a Citizen’s Charter within six months of the commencement of the Act.

A “public authority” is defined as an institution of self-government constituted (1) under the Constitution;

(2) by a law made by Parliament or a state legislature. It includes a Government company, a non-

government organization substantially financed, directly or indirectly, by the appropriate Government and a

company that supplies goods or services under an obligation imposed by an Act.


GAME CHANGER

The Citizen’s Charter shall (a) list details of goods and services provided by a public authority; (b) the name

the person or agency responsible for providing the goods or services; (c) set the time frame within which

such goods or services have to be provided; (d) set the category of people entitled to the goods and

services; and (e) state details of the complaint redressal mechanism.

Many states (including Delhi, Bihar, Madhya Pradesh, Uttar Pradesh, Rajasthan, Punjab, Uttarakhand and

Himachal Pradesh) offer their own version of the Citizen Charter or Public Service Guarantee Act. There

is some concern about whether the Central Bill encroaches the federal nature of India where the state

government has jurisdiction over some of the services to be provided to the citizen.

• ThePublic Procurement Bill 2012

The Public Procurement Bill 2012 will make e-procurement mandatory across all Government ministries

and departments for all tenders worth more than Rs1 mn. The auctioning of various resources, whether

spectrum or coal, is now electronic. While an electronic system is no cure-all for tender rigging, a more

open and transparent system reduces the importance of ‘agents’ and increases speed of delivery.

Under the current mechanism, the General Financial Rules, as issued by the Ministry of Finance, mandate

that tenders can be (1) advertised, (2) limited or (3) single. Chapter II-B of the proposed Bill lists the ways in

which Government agencies can procure: (1) Open competitive bidding, (2) limited competitive bidding,

(3) two-stage bidding, (4) single-source procurement, (5) electronic-reserve auction, (6) request for

quotations, (7) spot auctions and (8) any other prescribed method. The Bill explicitly states that open

competitive bidding must be the preferred option.

Is legislation the solution?

What is required is dedicated execution of the idea of digitization rather than simply legislation on the

topic: Legislation can help to define the contours of digitization, its uses and help to prevent its misuse. The

user acceptability of digitization by all stakeholders is important. Publicizing the “wins” and learnings of the

digitization initiatives can prod other players into digitization.

"I, Akhilesh Tilotia, hereby certify that all of the views expressed in this report accurately reflect my personal

views about the subject company or companies and its or their securities. I also certify that no part of my

compensation was, is or will be, directly or indirectly, related to the specific recommendations or views

expressed in this report."

have youread our

gamechangers?

‘365 Million’ analyses India’s readiness for its forthcoming demographic dividend

‘Deluge of Opportunity’ examines developments that could make water a viable business proposition

‘Indian Household Savings’ highlights that US$10 tn is up for grabs in the next 15 years

‘The Time is Ripe’ highlights opportunities in agriculturethanks to technology and processing

‘X Factor’ looks at India’s need to increase manufactured goods in its export base

‘M2’ examines how mobile money is going to catalyze the race to trade with the Indian consumer

‘The Great Unskilled: Can we fix it?’ examines India’s challenge in making its ‘productive’ population employable

‘Meta-morph: The India Consumption Story’ looks forward to determining the drivers of consumption growth in India

MAGIC: The Great Escape presents a scorecard to check if India can beat the middle income trap

‘The Next Big Things’ identifies 14 companies helping shape India’s growth story and who could be the next darlings of the Street!

Copyright 2013 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved.

Design: Camelia Oberoi

1. Note that the research analysts contributing to this report may not be registered/qualified as research analysts with FINRA; and

2. Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. Investors should assume that Kotak Securities Limited and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and other business. Kotak Securities Limited generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein.

This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of clients of Kotak Securities Limited. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Kotak Securities Limited does not provide tax advise to its clients, and all investors are strongly advised to consult with their tax advisers regarding any potential investment.

Certain transactions -including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are not suitable for all investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only. We endeavor to update on a reasonable basis the information discussed in this material, but regulatory, compliance, or other reasons may prevent us from doing so. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material, may from time to time have “long” or “short” positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. For the purpose of calculating whether Kotak Securities Limited and its affiliates holds beneficially owns or controls, including the right to vote for directors, 1% of more of the equity shares of the subject issuer of a research report, the holdings does not include accounts managed by Kotak Mahindra Mutual Fund. Kotak Securities Limited and its non US affiliates may, to the extent permissible under applicable laws, have acted on or used this research to the extent that it relates to non US issuers, prior to or immediately following its publication. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. In addition, investors in securities such as ADRs, the value of which are influenced by foreign currencies affectively assume currency risk. In addition options involve risks and are not suitable for all investors. Please ensure that you have read and understood the current derivatives risk disclosure document before entering into any derivative transactions.

This report has not been prepared by Kotak Mahindra Inc. (KMInc). However KMInc has reviewed the report and, in so far as it includes current or historical information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed. Any reference to Kotak Securities Limited shall also be deemed to mean and include Kotak Mahindra Inc.

DISCLAIMER:This email is intended for the recipient/s to whom it is marked only and is subject to restrictions detailed in our Disclaimer on http://kie.kotak.com

GAMECHANGER VOL IV.I - May 2013

Corporate Office

Kotak Securities Ltd.

Bakhtawar, 1st Floor

229, Nariman Point

Mumbai 400 021, India

Tel: +91-22-6634-1100

Overseas Offices

Kotak Mahindra (UK) Ltd

6th Floor, Portsoken House

155-157 The Minories

London EC 3N 1 LS

Tel: +44-20-7977-6900 / 6940

Kotak Mahindra Inc

50 Main Street, Suite No.310

Westchester Financial Centre

White Plains, New York 10606

Tel:+1-914-997-6120