KPMG_PHD_Chamber_Emerging Dynamics and Challenges of Internal Security in India

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DEFENCE

Emerging

dynamics andchallenges ofinternal security

in India

14 June 2013, Delhi



1

With the growing economic uncertainty and complexities

plaguing the country, it has never been more challenging for India

from an internal security perspective. The new dimensions of the

threats India faces require very agile security governance. Our

state responses are gearing up to match the speed with which

things are changing. A multilayered approach that includes depth

and breadth of defence is the only way to meet the challenges

and protect the country’s assets. Given the vast potential of the

market, there is renewed interest in the ‘homeland’ or internal

security, with a host of private rms seeking to leverage the

opportunities that exist in this largely undocumented segment.

With this as a backdrop, PHD Chamber is organizing a conclave

on “Homeland Security: Industry Perspective & Investment

Opportunities for Indian & Foreign Investors”.

I wish this Conclave encourages foreign investment into

India through joint ventures with Indian players and create an

integrated and self-reliant Homeland Security apparatus in India.

Suman Jyoti Khaitan

President

PHD Chamber of Commerce

and Industry

Internal security has witnessed an increasing focus in the

recent past. While this gets reected in the increased budgetary

allocation for security expenditure, Ministry of Home Affairs

(MHA) has also sought to create physical and policy-level

framework for long term development of security infrastructure.

Over the last few years, considerable progress had been made;

and yet much needs to be done for gearing up to the need of new

emerging India.

Private sector has played a signicant role in meeting the security

requirements in various countries. Indian industry has begun

taking note of the potential growth opportunity by aligning itself

to emerging technology requirements .There is an immediate

need for creation of an integrated and indigenous solution

development that is adequately supported by active policy

framework and in house research and development capability

to address some of the grave challenges that our country faces

today.

Pradeep Udhas

Partner and Head

Sales and Markets

KPMG in India

Message

PHD CHAMBER OF COMMERCE AND INDUSTRY KPMG IN INDIA

© 2013 KPMG, an Indian Registered Partnership and a member frm o the KPMG net work o independent member frms afliated with KPMG International Cooperative (“KPMG International” ), a Swiss entity. All rights reserved.



2

Internal security in India is characterized

by being one of the national subjects that

encompasses many complex individual

subjects, across the center, state and local

jurisdictions, dened by the borders of

the homeland yet challenged by unique

local conicts, spanning every nook and

cranny of the country’s vast and diverse

topography. Simplistically dened under

the aegis of the Ministry of Home Affairs,

the subject of security spins a complex

web around an ecosystem comprising

local, state and central governments,

players across the private sector and thepublic sector, including law enforcement

ofcers, protective agencies, and

intelligence agencies.

Internal security today is handled by

a multitude of bodies with complex

functional and reporting relationships. Law

and order is a state subject and the state

police are responsible for maintaining

the same. The Ministry of Home Affairs

is responsible for internal security,

management of paramilitary forces, border

management, center-state relations,administration of union territories and

disaster management.

A subject that spans across matters of

grave national interest like defending the

country’s borders to those of local priority

at a city level, ie critical infrastructure like a

monument of religious signicance; from

matters of brick and mortar like physically

protecting our coastline to ghting the

downsides of technological advancements

like Cybercrime- this is indeed a vast and

dynamically evolving subject, which is

managed by a network of empowered

authorities.

The paper attempts to briey analyse the

background of Indian internal security

environment, the business opportunities

that lie ahead for Indian and global

companies for partnering with the

government agencies towards securing

our nation. It suggests potential way

forward for all stake holders towards

building win-win partnerships and critical

success factors for survival in this industry.


Executive Summary



3


The budgetary allocation for the Ministry

of Home Affairs (MHA) for the year

2013-14 has been pegged at around

USD 10.8 bn and is expected to witness

a Compounded Average Growth Rate

(CAGR) of ~15% thereby touching USD

18.8 bn by 2017-18. This is expected

to provide a signicant push to the

domestic market driven primarily by the

requirements dened by modernization

and up gradation plans.1 A heightened

threat perception coupled with growing

realisation of the challenges that lie before

us are now driving government initiativesthat are targeted towards strengthening

the internal security that has become a

signicant national priority. The existing

ecosystem is multilayered and complex

with multiple reporting channels. Given

the conicting priorities, and varying

methodologies adopted by the various

stakeholders, there arises a strong need

to nd a synergistic common ground for

them.

India with its continental dimensions,

varied terrain, large porous land borders,

long coastline and ethnic differences

poses a complex security challenge.. The

recent terror attacks and ethnic clashes in

the country have accentuated the need to

protect the internal environment. In light

of current events and threats, the central

and state governments in the country

now perceive the modernization and

up-gradation of the infrastructure as an

area of priority. This has led to an increase

in expenditure outlay in the country. The

government has rightly realigned itself by

creating a new ecosystem to combat the

existing challenges.

India’s internal security –An evolving landscape

Figure 1: Conicting priorities of the stakeholders

1 MHA Annual Report 2012-13, KPMG in India analysis

Source: KPMG in India analysis



4


Figure 2: Internal security ecosystem

Source: Ministry of Home Affairs (MHA), KPMG in India analysis



5


Terrorism and Naxal management are the

key internal security challenges of India.

Naxal menace is also referred as Left Wing

Extremism (LWE) and it seriously affectsnine states.

Key characteristics

Twin problems of Naxal and terrorism

have socio-economic-politico origins and

as such the government is countering

these by a combination of security and

developmental perspectives. The areas of

operation are under-developed on most

of social indices. There is a dire need

for forces specically trained in counter

insurgency operations with adequatelyequipped intelligence mechanisms.

Key market drivers

The government has initiated several

initiatives such as scheme for special

infrastructure, establishing Counter

Insurgency and Anti-Terrorist schools

(CIAT), Integrated Action Plan (IAP) for

development targeting towards curbing

the LWE activities2. These initiatives are

expected to be the key market drivers that

open avenues of collaboration between

the industry and the government. It

includes raising special battalions andequipping them with necessary gadgets,

establishing training schools etc.

Market potential

Our analysis suggests that an amount

of USD 1 to 2 bn was spent on security

infrastructure related programs (focused

towards curbing naxalism and terrorism)

during 2012-13. Equal impetus is being

given to development efforts in the

affected areas, by emphasizing on better

implementation of various developmentschemes. There has been nearly three

folds increase in spending in last two years

on this account.

Key government priorities

MHA’s focus has been on capacity

building of state forces through various

schemes to reimburse Security

Related Expenditures (SRE) on training,

operational needs and funds for ex- gratia

payments. Creation of security related

infrastructure viz fortied police stations,

roads/track connectivity and construction

of helipads in inaccessible areas is beingexecuted. Equal impetus is being given to

development efforts in the affected areas,

by emphasizing on better implementation

of various development schemes.

Key challenges

• Obtaining actionable intelligence and

appropriate technology to collate and

analyze the inputs

• Concerns of in accessibility coupled

with challenges in mobility countering

IEDs, surveillance and secure

communications continue to plague the

system.

Naxal management and terrorismGrave challenge facing the country today




6


Key characteristics

Industrial assets and various energy

production facilities are widely spread

out across the country. Safeguarding

transportation modes and assets that has

large public footfall requires considerable

allocations of physical security and

applications of technology.

Key market drivers

Creation and up gradation of vital

infrastructure such as new power plants,

construction of hydro dams, ports, oil

reneries, sensitive religious centers etc.

are expected to be the key market drivers.

Market potential

Our analysis suggest that the cumulative

market potential for the infrastructure

security is expected to be approx. USD 0.8

to 1.2 bn over the next 4 to 5 years.


Investments to the tune of USD 1 Tn

are planned for infrastructure creation

in the 12th plan period ending March

2017 and this will require an exponential

spend increase for protection of such

investments.

Key challenges

• Providing trained manpower for

physical security

• Deploying state of the art, cost

effective gadgets for surveillance,

collation and analysis of data.

Key characteristics

Border security is aimed at securing

nation’s borders against interests hostile

to the nation by putting in place processes

to interdict them and facilitate legitimatetrade.

Key market drivers

The border security and development

projects that are being carried out by the

MHA to upgrade the security eco system

are expected to be the key market drivers:

a. Projects include border fencing, roads,

ood lighting , creation of additional

Border Out Posts (BOP) for guarding

and creation of Integrated Check Posts

(ICPs) for land trade

b. Socio development of the border areas.

Market potential

An amount of USD 0.7-1 Bn was spent

on various programs to upgrade border

infrastructure during 2012-133. The border

security related equipment procurement

opportunity itself could be upwards of

250-500 Mn over the next 4-5 years.

Government priorities

The key priority of the government is to

secure land borders with Bangladesh

and Pakistan by fencing, oodlighting

and having a network of roads to

facilitate effective patrolling all along3.

The mechanism on Bangladesh border,

is aimed at curbing illegal migration

and smuggling, whereas on Pakistan

border, it is to prevent inltration and

arms smuggling. Creation of critical

infrastructure and development works

are being undertaken by dedicated funds

through Border Area Development

Program. It is also in the process of

establishing 13 ICPs for trade through land

borders.

Key challenges

• To plug the porosity of borders with

effective surveillance by establishing

additional BOPs

• Application of technology for effective

guarding

• Creatinon of road networks on India

China border.

Critical Infrastructure ProtectionSafeguarding installations vital to sustaining India’s economic growth

Border SecurityStrengthening, developing and upgrading infrastructure

3 MHA



7


Key characteristics

In India maritime security is a cause

of concern since it lacks the required

infrastructure. There are number of

security concerns like landing of arms,

inltration / ex-ltration of anti national

elements, prevent smuggling and security

of Exclusive Economic Zone (EEC).

Key market drivers

The key market demand for the coastal

security infrastructure is expected to be

created by two major programs as dened

by the MHA:

a. Coastal Security Scheme - Phase 2which is focused on upgrading the

infrastructure by purchasing interceptor

boats, building coastal police station

etc.

b. Coastal Surveillance Scheme – Phase

2 focused on setting up multiple radar

stations by acquiring radars , day and

night vision cameras and establishing

Command & Control Centers.

Market potential

The coastal security related spend under

the coastal security scheme phase 2

during 2012-13 was approx. USD 170 – 200

Mn4. A yearly spend of approx. USD 80

Mn is budgeted over the next 3 to 5 years

period (under the same scheme).


The key priority as per the MHA is to

enhance maritime security by creating

coastal police stations, check posts

and providing vessels to patrol high

seas and intercept intruders. Separate

comprehensive coastal security plan is

being executed for Andaman and Nicobar

island territories.

Key challenges

• Establish and operationalize coastal

police station, construct jetties, procure

a large number of patrolling and

interceptor boats

• Needs to be supplemented with sizable

numbers of radars and networked

surveillance systems.

Key characteristics

Police Modernization (PM) division of

the MHA is mandated to steer this effort

of modernization of all police forces,

procurement of arms/equipment and

effecting reforms.

Key market driversVarious programs such as megacity

policing, city surveillance project, Crime

Criminal Technology Networking Systems

(CCTNS) have been initiated aimed at

creating and upgrading the infrastructure

across various cities in the country.

These programs are expected to create

considerable requirement for equipments

such as night vision devices, GPS/GIS for

patrol cars, surveillance camera systems,

portable x-ray machines, vehicle number

plate identication system, cyber patroland communication monitoring system

etc.

Market potential

The cumulative spending for the

police modernizationfor the past 5

years has been around USD 2 bn4. The

government has already approved a police

modernization plan(spread over 2013-17)

with an outlay of over USD 2 bn.


The government intends to enhance

the capabilities (qualitatively and

quantitatively) of the police forces to

equip them with state of art weapons,

communication systems and other

equipments The focus will be to

strengthen infrastructure with cutting

edge equipments and technology to make

a smart police force with much required

mobility and communication.

Key challenges

• States should be able to utilize their

allotted funds for modernization

• Technology is not being introduced at

the required pace to meet present day

policing and internal security challenges

•

The procurement processes need to bestreamlined and made robust to effect

speedier reforms.

Maritime SecurityA need for new emphasis

Police ModernizationNeed for technology enabled environment




8


Key characteristics

India’s heavy density population centers

and congested market places have

continued to be a nightmare for providing

security to these areas. City surveillance

systems aim to make our cities safer

by providing seamless surveillance of

vulnerable areas.

Key market drivers

Mega Safe City projects for 7 chosen

cities, as dened by the MHA, and the City

Surveillance programs for keycities in each

state (to be dened by the respective state

governments) are expected to be the key

market drivers that will create the need

for purchase of advanced surveillance

equipments.

Market potential

As per market reports, cumulative amount

of USD 300-500 Mn is being spent on

Delhi and Mumbai surveillance projects.

As other cities (mega and state cities) are

included in the plan, this is expected to

add to the market potential signicantly.


MHA intends to put in place a system

for keeping vulnerable areas under

surveillance and gradually build up

capabilities with wider surveillance,

networking, effective vehicle

management systems and feeding inputs

from these systems to data centers for

meaningful analysis.

Key challenges

• Creating customized security

architecture

• Applying contemporary technologies

and devising quick response systems.

City SurveillanceEnsuring safer cities

Key characteristics

Much of our critical infrastructure lies

in cyber space which faces challenges

from hacking, nancial fraud, data

theft and espionage. Any threat of

disruption of nancial, rail, air, power

and critical information services can be

construed as an act of terror, as such,

cyber security requires desired priority.

Intelligence collection, collation, analysis

and dissemination are a prerequisite forsuccess of internal security apparatus.

Key market drivers

The key drivers for the cyber security

equipment market are the technology

programs such as NATGRID which

demands setting up of state of the

art safe networking / communication

infrastructure. Also, the constantly

increasing computerization drive across

different state and central ministries and

sensitive installations demands urgentneed to upgrade the cyber security

infrastructure.

Market potential

MHA is planning to execute several

programs to enhance the cyber security

are underway. NATGRID alone has a spend

budget of USD 0.2 bn approximately

spread over 4 to 5 years, thus making the

cyber security domain a lucrative business

opportunity for the private sector.


• The key priorities of the governmentis to create robust mechanism to

monitor ow of information and data on

different media to help detect, prevent,

investigate and deter criminal and

terrorist actions

• Increased emphasis on investment

in building up new and required cyber

infrastructure.

Key challenges

• Ensuring development of right skills at

operational level

• Have dedicated cyber security laws in

place to create a techno-legal expertise.

Intelligence and Cyber securityCountering the threat



9


The government’s efforts in upgrading the

country’s internal security infrastructure

opens up multiple opportunities for the

Indian and global companies to partner

towards securing the nation . The current

technology penetration level across

different segments pertaining to inland

security is very low when compared to

developed economies. This again creates

avenues to technology companies to

bring in innovative, advanced as well

as cost effective solutions to meet the

growing demand of building the country’s

underdeveloped infrastructure. Thekey business opportunities across the

segments will arise out of vital purchases

of advanced equipments and also up

gradation of the existing out dated

infrastructure.

A need to address sectoral

challenges

Our analysis suggests that the Indian

security environment has few challenging

characteristics that are being encountered

by the industry:

• Sector fragmented with no single

decision making authority

• Current procurement process complex

and slow

• Market requirements not so clear

due to constant evolution and

fragmentation• No assurance of continuous orders

• High entry costs and associated risks

including long gestation period and

associated bureaucratic delays.

Critical Success Factors for the

industry

The gure below (Figure 3) lists down

some of those critical success factors that

the industry should focus on in order to

overcome the existing bottlenecks and

establish a successful partnership with the

government.

An emerging opportunity forthe private sector

Critical success factors Priority Basis

Understanding the government ecosystem,

stakeholders and their requirements4 Multiple stakeholders including the ministry, departments under the

ministry, nodal executing agency and PSU companies are expected to be

involved

System Integration capabilities 2 Usage of multiple technology products such as Radars, Cameras, AIS,

etc driving need for data fusion

Understanding of Procurement Process 4 In-depth understanding of the procurement process (procedures, policy

framework, qualication criteria etc)

Product Localization 2 • Driven by unique characteristics/ topography

• Government also keen to encourage indigenous development/ Transfer

of Technology

• This will also help in bringing the product cost lower.

Strategic Alliances with Indian companies 4 Local partnerships critical to provide implementation assistance and

sustain the customer relationship

0 Low 2 Medium 4 High

Figure 3: Critical success factors for the Industry

Source: KPMG in India analysis



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One of the key challenges associated withthis sector is the coordination across all

of the concerned agenciesto take a truly

national approach to internal security.

So, what will it take to manage a

concerted, coordinated and truly

integrated national effort?

• The national internal security vision and

agenda should be dened and then

cascaded down to the state and local

level

•

Reforming, realigning and buildingupon the existing security structures at

all levels so as to support the national

agenda, allowing a more decentralized

yet coordinated model

• Higher degree of coordination between

various departments, as also, between

the center and the states, that require

clarity on role, minimizes overlaps

and conicts and allows adequate

empowerment

• Seamless Intelligence data sharing

across the network, through clearly

spelt out objectives, guidelines and

protocols

• Greater private sector involvementand participation with emphasis on

indigenization

• Creating systems for bulk

procurements to achieve scales of

economy for the industry.

These aspects need to be planned and

executed so as to help manage this

complex ecosystem while orchestrating

the various factions to harmoniously

deliver on the National Security agenda.

Internal Security is a very essentialcomponent of the national security and its

importance cannot be over emphasized

to ensure growth of a fast emerging

economy like India. Capacity building in

internal security is imperative to match

our national aspirations and this can only

be achieved by adopting technology in all

elds of internal security. The outlook is

bright but it needs Government’s on-going

active management and ne tuning of

policy, regulations, process and scal

environment and on the other hand theindustry will have to play an important

role to provide cost effective solutions.

Together this will ensure effective project

implementation and create a safer nation.

Way ForwardNeed for creation and management of an integrated and self-

reliant security apparatus



11


PHD Chamber is a 108 year old vibrant

and proactive representative organization

of business and mercantile community of

northern and central India, serving their

interest. This apex regional organization

plays an active role in India’s development

and acts as a much needed link between

government and industry, serving as a

catalyst for rapid economic development

prosperity of the community in the region

through promotion of trade, industry and

services.

With its base in the National Capital,

Delhi, the Chamber has Regional ofces

in States of Bihar, Chhattisgarh, Haryana,

Himachal Pradesh, Jammu & Kashmir,

Jharkhand, Madhya Pradesh, Punjab,

Rajasthan, Uttar Pradesh, Uttarakhand and

the Union Territory of Chandigarh.

About PHD

Six Thrust Areas

• Industrial Development

• Inrastructure

• Housing

• Health

• Education and Skill

Development

• Agriculture and

Agribusiness



12


About KPMG in India

KPMG in India, a professional services rm, is the Indian member rm of KPMG

International and was established in September 1993. Our professionals leverage the

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and competition. KPMG in India provide services to over 4,500 international and nationalclients, in India. KPMG has ofces across India in Delhi, Chandigarh, Ahmedabad,

Mumbai, Pune, Chennai, Bangalore, Kochi, Hyderabad and Kolkata. The Indian rm

has access to more than 7,000 Indian and expatriate professionals, many of whom are

internationally trained. We strive to provide rapid, performance-based, industry-focused

and technology-enabled services, which reect a shared knowledge of global and local

industries and our experience of the Indian business environment.

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services. We operate in 156 countries and have 152,000 people working in member

rms around the world.

Our Audit practice endeavors to provide robust and risk based audit services that

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KPMG’s Tax services are designed to reect the unique needs and objectives of each

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immediate needs as well as put in place the strategies for the longer term.



13


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The inormation contained herein is o a general nature and is not intended to address the circumstances o any particular individual or entity. Although we endeavour to provide accurate and timely

inormation, there can be no guarantee that such inormation is accurate as o the date it is received or that it will continue to be accurate in the uture. No one should act on such inormation without

appropriate proessional advice ater a thorough examination o the particular situation.

© 2013 KPMG, an Indian Registered Partnership and a member frm o the KPMG network o independent member frms afliated with KPMG International Cooperative (“KPMG International”), a Swiss

entity. All rights reserved.

Th KPMG l d “ tti th h l it ” i t d t d k t d k KPMG I t ti l P i t d i I di

KPMG Contacts

Pradeep Udhas

Partner and Head

Sales and Markets

T: +91 22 3090 2040

E: [email protected]

Neelu Khatri

Director

Deence Advisory

T: +91 124 307 4000


kpmg.com/in

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T: +91 11 2686 3801-04


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