oil makes the world go round

17WWW.ECONOMICTIMES.COM

 Viewpoint

This last week, the entire world has beenwatching in awe as the Arab worlderupts. Innumerable commentators whoare far more qualified than me are ana-lysing the phenomenon to shreds. I ex-pect this will be one of those historic wa-tersheds that will forever change anydiscussions about the Middle East, what-ever happens in Egypt, Yemen, Libya, Al-geria or Bahrain from here on. Tunisia,which most of us were vaguely aware of as a tourist destination, has suddenly be-come the centre of world interest.

And that brings me to the point I’m try-ing to make. Where I’m coming from, oneof the most fascinating reactions I’ve gothave been from a Pakistani acquaintan-ce here. “Finally, the Islamic world is inthe news for the right reasons, and not be-cause we’re all some kind of Terror Ali.”For years, we’ve all been hearing, fromevery kind of government, social activistand academics that whole spiel about the‘problem of alienated Islamic’ youth. It’sactually an incredibly hoary old story.For years, the Arab world has been in thegrip of autocratic rulers, propped up byimplicit and explicit support from otherworld governments, just to keep that cru-cial oil flow coming through. For years,the poor, the young, the unemployed andthe underprivileged, brought up in re-pressive regimes themselves, havesought succour from the only alternativethey find, the likes of al-Qaeda.

What those young people in Egypt andTunisia have done is show up theirgranddaddies that, yes, there is an alter-native to suicide bombing for the alienat-ed, the poor, the young, the huddled mas-ses. All world governments, including inIndia, instead of hijacking Egypt’s tri-umph for their own narrow political rea-sons, should grab this opportunity. Andtell their own young and poor that thereis a peaceful alternative to suicide bomb-ing and terrorism. Because the one otherthing that has become all too evident isthat this is a globalised village. Like epi-demics, like financial crises, and every-thing else, national boundaries are dis-solving like never before.

The other most fascinating positive les-son is that the best way to get rid of tyran-ts is simply to outlive them. The eccen-tric Mr Qaddafi, for instance, may wellrepress the Libyans now, but well, natureis catching up with him. In a democracy,there’s this illusion that elections canbring about change, but if the subconti-nent is an example, all elections give us isone bunch of geriatric incompetents orgrandiose General after another.

The other big headline story this weekis the continuing wrangle between theIndian government and Cairn-Vedanta.What have I got left to say on that? Itdrives me to despair when I see sweepingstatements about ‘national interest’from the oil mandarins. Oh, get real,somebody. It is still absolutely unclearwhat ONGC’s royalty, where ONGC is acommercial partner of Cairn India, hasto do with a transfer of parent control be-tween two listed companies on the LSE.

It’s also totally ridiculous why this hastaken more than six months. Until the re-cent spate of meetings after the PMO is-sued a directive, there was absolute sta-sis for over four months. How on eart h, if they didn’t conduct negotiations or dis-cussions, did they expect to come to anyagreement by end of Jan? If the petro-leum ministry had to refer it to the Cabi-net, why wait for eternity?

This is absolutely not the time to act allmacho about national interest. Find aface-saving excuse, clear the deal and bedone with it. Or kiss goodbye to the hopethat India will attract even a fraction of that $1 trillion for infrastructure. Beforeeveryone calls me biased, hey, I’m goingto have to live with the nuclear falloutfrom international investors, not the pet-roleum ministry, so I have every right tobe ticked off. Already, I’m hearing every-day about how much easier LatAm is toinvest in. Or Vietnam. Eastern Europe isrecovering from recession — and that re-gion has always been a preferred destina-tion. I don’t have to tell the readers of thispaper that inbound FDI is tanking.

International FDI investors don’t careabout your internal scams, or the gobble-dygook about clauses that the Indian gov-ernment is feeding my colleagues every-day. They look at the final results. Thereport card is like this. Cairn UK took therisk of investing in oil exploration in In-dia when nobody would, and they got a fa-vourable deal with their commercialpartner ONGC, when nobody knew therewas oil in Rajasthan. It’s selling its stakein Cairn India to another UK-based com-pany, Vedanta, for which ne ither needsGoI permission, only the FSA and Sebi’s.

Cairn India needs government clear-ance to transfer the licences. The petro-leum ministry wants to change the termsof a commercial agreement signed byONGC and Cairn India, as a preconditionfor a transaction between their parents.And then it dithers for six months of com-plete paralysis. Would RBI revoke licenc-es for one foreign bank that buys out In-dia operations of another? It wouldn’tdream of doing so without serious provo-cation. What makes the petro min differ-ent? That’s where it gets all political.

If the petroleum ministry wanted totransfer the case to Cabinet, why wasteall this time? If they didn’t approve of Anil Agarwal, which seems to have beenthe case originally, they should havefound a legal and transparent reason tosay so, and scuppered the deal in Augustlast year. But no, they dither, and posturein public, and get all rhetorical. Now,they’re dug in their own hole: neitherONGC nor the petroleum ministry canbacktrack from what is fast becoming anuntenable position without losing politi-cal face, and so have passed hot potato.

Don’t dither. It spooks people who sinkzillions into the arid ground, literally, for20 years or more. Dithering, it seems willbe the lasting epitaph for this govern-ment. Sigh.

sudeshna.sen@timesgroup.com

Oil Makes the

World Go Round 

Letter From London | Sudeshna Sen

SALAM

RAJEEV BAKSHI

Ibe gin by asking some provoca-tive questions: why is today’sadvertising industry unable toacquire the best talent? Why isthe industry fragmenting com-munication options into differ-ent businesses and not provid-ing complete solutions to clie-nts? Why are communicationvalue-additions dwindling, asthe industry’s shrinking mar-gins seem to indicate? And fi-nally, why is the profession pro-ducing no strong leadership?

Advertising was once a career

today as it was a century ag o. Ithas managed this simply by re-inventing itself. Lifebuoy haslaunched new products such ashand sanitisers that have donewell for the brand and for thebusiness as a whole.

The fragmentation of the ad-vertising industry is unusual:the emergent parts of the busi-ness — such as digital commu-nications and PR — are beingset up as separate enterprises.What advertising really needsto offer clients is a comprehen-sive communications solution.The creation of silos will neverbe able to produce the neces-sary value addition or secureadditive margins.

Leadership: I see a completelack of it. I don’t want to com-ment on the erosion of leader-ship over the years. But indeed,where are today’s young lead-ers and ‘thought provokers’,

and acquire different skill sets.But it is a moot question wheth-er the advertising industry ishelping professionals to dothat. Clients need new perspec-tives and ideas from intellec-tual equals. These are what theindustry must strive to provide.

New investments and new en-trepreneurial leadership arecritical. I lament that the adver-tising industry is not doing aswell as it should. It should drawupon its rich le gacy, and startdoing things differently. Spin-off enterprises — such as digi-tal communications — need tobe reintegrated into advertis-ers’ portfolio of offerings, peo-ple need to be reskilled — thereis much they must relearn, andtheir discussions with clientsneed to become much morecomprehensive.

Counter-intuitive as this mayseem to current trends, it is

communication solutions havenot been created. Therefore, mythesis is that the advertising in-dustry peaked in the late 1980s,liberalisation in 1992 extendedits life cycle by a few more years,but at the same time, the compe-tencies of people joining theprofession in the 1990s weregenerally found to be markedlyinferior to those of profession-als from earlier decades. Thiserosion of talent has only inten-sified since.

Advertising is all about inno-vation and clever representa-tion, but I haven’t seen truly im-pressive examples of thesequalities so far. There has beenno serious attempt by the indus-try to invest in people, and de-spite some internal trainingprogrammes, the industry hasthe highest turnover rate. An-other significant trend — close-ly linked to the dearth of talent

tising industry with two op-tions: consolidation or frag-mentation. I disagree with theargument that fragmentation

Advertising Agency, Reinvent Thyself 

Perspectives

Lamenting the dwindling fortunes of an industry once hailed for its creativity, talent and leadership

RANA KAPOOR

India is at the cusp of its pre-cri-sis 9% growth trajectory, and isextremely well-positioned for

the next growth cycle. While there isbroad consensus that the countrymust continue to g row rapidly, andwill soon cross the ‘double-digit-growth’ barrier, there is also anemerging focus to make this growthsustainable and inclusive.

Financial inclusion has become anational and a government impera-tive in the last few years, and theburning discussions towards finan-cial inclusion have definitely reac-hed a crescendo this year with in-creased focus from the government,various policymakers and somegenuine progress by the private sec-tor and financial institutions.

However, while there is a growingawareness and agreement on the im-portance of financial inclusion, thesame consensus doesn’t seem to re-flect around its ‘definition’ and the‘execution process to achieve’ finan-cial inclusion. It is also important toappreciate that the objective of pro-viding affordable access of suitablefinancial services to the financiallyexcluded is to ensure ‘economic de-velopment and progress of the fi-nancially excluded’ and that ‘inclu-sion of the excluded’ is only a meansto an end and not the en d in itself.

The question one needs to answeris not only ‘how to provide bankingservices to the financially excluded’but ‘how to ensure economic pro-gress of the financially excluded’.

Addressing the first question,where the predominant focus and ef-forts are underway, it is restrictiveand with a limited vision. This ‘di-rect intervention model of bankingthe unbanked’ through either bran-chless banking, business facilita-tors (BF) or business correspond-ents (BC), etc, model is fraught withchallenges for financial institutionsincluding high barriers to entry,long gestation period and high go-to-market and servicing costs. This isfurther aggravated with a lack of awareness and trust amongst the fi-nancially excluded regarding thebenefits of the banking system.

Hence, reaching out to over 700 mil-lion citizens across six lakh villageswho don’t have access to the formalbanking system is likely to be a Ha-numanian task. In my opinion, evenwith the implementation of the UIDand large-scale utilisation of mobilebanking and other technologies,achieving financial inclusion throu-gh this mode would take the betterpart of the next 2-3 decades.

In my judgment, the more viableand market principles-based alter-native is to address the ‘how to ensu-re economic development and pro-gress of the financially excluded’.The solution is strongly predicatedon unleashing the untapped poten-tial of the micro, small and mediumenterprises (MSME) and unorga-nised segments by improving theirbankability and, thereby, the com-

petitiveness of this large segment.This is effectively a ‘multiplier im-pact’ model, with focus on economicdevelopment and progress.

The MSME segment, constitutingaround 26 million units, contributes45% of industrial output, 40% of ex-ports, employs 60 million people andcreates 1.3 million jobs every year,and ensures balanced regional andsocially-inclusive growth.  Innovative business models for  MSME financing: Globally, commer-cial banks are the main source of fi-nance for MSMEs. However, consid-ering the nature and characteristicsof the industry, access to finance re-mains a key concern area. This hasresulted in the ever-increasing fi-nancing gap for MSMEs, leading to apotential loss to the national econo-my. The traditional approach toMSME financing that was based onrigid credit assessment frame-works, limited delivery channelsand hierarchical structure for deci-sion-making needs to be replacedwith new flexible models for MSMEfinancing, to ensure agility andachieve cost efficiencies.

New-age banks are moving to amore flatter, horizontal and func-tional structure, to lead to faster,time-bound and objective decision-making processes, while financingMSMEs. This should be furthercomplemented by leveraging tech-nology to make the application, ap-praisal and sanctioning process fas-ter for the MSMEs.

The issue of high cost of acquisi-tion and servicing of MSMEs can beaddressed through innovative prod-ucts that are more suitable forMSMEs. The plain-vanilla standar-dised products are being replaced bystructured products, such as receiv-able financing, cash flow-based lend-ing, asset securitisation, guaran-

lighted through industry forums.Targeted investments are requiredto be made to create affordable ind-ustrial areas, industrial parks, tech-nology incubators, with integratedinfrastructure facilities, underMSME cluster programmes. OVOP(one village one product) and OTOP(one tambon one product) program-mes in Japan and Thailand, respec-tively, catalysed development of in-dustries unique to their regions, andcultivated them to national and glob-ally-accepted levels with strong geo-graphic appellation, traceabilityand trustmarks evolving.

Also, suitable policy frameworksshould be devised to align investorsfrom public, private, PE funds andother institutions that approachMSMEs for financing with diverseofferings and expectations. A posi-tive initiative towards improvingthe existing policy, legal and re gula-tory framework is the World Bank-led multi-agency project on financ-ing and development of MSMEs be-ing implemented by Sidbi.  Knowledge-driven solutions: MostMSMEs are run by entrepreneurswho are adept in technical knowl-edge, but lack the financial, legal ormanagerial expertise, and are un-aware of financing options or gov-ernment schemes available to scaleup their enterprises. To address this,at Yes Bank, we have made con-scious efforts towards this, andknowledge banking is one of our keypillars, through which we focus onthe MSME sector, with the objectiveof creating a knowledge-based plat-form for MSMEs, that enables shar-ing of global best practices, analysesindustry and sector trends, and ap-plauds successes in the diverseMSME universe of India.(The author is founder, managing 

director and CEO of Yes Bank)

tees, cash management services andadvisory services, to provide a com-prehensive solution to MSMEs.

The cluster-based approach, throu-gh strategic partnerships with localand national trade associations, canhelp banks access MSMEs and de-veloping customised propositions.Countries such as Taiwan, HongKong and Italy have shown that acluster-based approach can be effec-tive in competing in export markets.

The rigid risk assessment modelsneed to be replaced by new techniq-ues to distinguish between high-riskand low-risk MSME borrowers.There is a huge opportunity to bringthe large number of MSME units

under formal bank-ing, through a moreflexible and intelli-gence-based creditappraisal metho-dology for MSMEswith specialist rela-tionship and creditmanagers.  Policy frameworksand strategic initia-tives:  Appreciatingconcerns of the

MSMEs, the government has takenanumber of progressive steps to de-velop a conducive environment fordevelopment of MSMEs. Focusedsteps were taken by the governmentin response to the global crisis, in-cluding refinance facilities, specialwindow to augment credit flow toMSMEs, directing PSUs for timelypayments to MSMEs, enhanced cre-dit guarantees, etc. As the economytides over the financial crisis, a heal-thy business ecosystem should becreated for MSMEs, based on mar-ket principles.

Industrial infrastructure, specifi-cally for MSMEs, remains inade-quate, and has been repeatedly high-

MSMEs: The BiggestInclusion OpportunityAllowing easier finance to millions of small enterprises is a faster way of bringing

prosperity to the masses than banking on unwieldy models for financial inclusion

Size Does MatterHow to ensure economic progress of the financially excluded

Large corporates

& MNCs

1%

SMEs

25-30%

MSMEs &

informal sector

65-75%10-15 yrs

2020-25 2030-40

Investments, banking focus

Policy, reforms

Multiplier

impact:

Focus on

economic

development

& progressMissing middle

Employed

within MSMEs &

unorganised sectors

Financially-

excluded

population

(~700 m)

SOURCE: IFC report, Yes research, estimates

With 26million units,60 millionstaff and 1.3million new jobs everyyear, MSMEsensure

inclusivegrowth

KAMAL

Crossword 4879

Advertising was once a careerof choice for graduates of man-agement institutes. It was defi-nitely a premier ‘creative’ op-tion in the 1970s and 1980s.Today, I don’t think advertisingcompanies even feature on thetop B-schools’ placement lists.They can’t recruit a single per-son from these institutes. Onewonders why.

I am concerned that in orderto survive the onslaught of low-er margins, the advertising in-dustry is fragmenting itself re-lentlessly. This seems unneces-sary to me. Lifebuoy is a brandthat has been around for ahundred years. It is as ‘current’

ers and ‘thought provokers’,who could change the very na-ture of advertising?

Post-1992, strands of liberali-sation began to emerge in In-dia. Businesses consolidatedthemselves through buyouts — consider Hindustan Lever, forinstance. The advertising in-dustry responded through ‘spe-cialisation’: advertisers beganto earn their surplus incomefrom 30-second spots on TV.

The future is India. In the next5-10 years, business growth willbe massive. Growing businesswill create a growing need foradvertising. Opportunities forgrowth will present the adver-

seem to current trends, it issomething I strongly advocate.A full-portfolio approach is al-ways superior: become entre-preneurial within and not justwithout. I am optimistic thatthe possibility of rising mar-gins and inspiring leadershipin the advertising industry hasnot eluded us for good. We needto begin thinking of how to ad-dress the problem, rather thanevading it.(The author is managing director 

of Metro Cash and Carry India.

The article is based on his speech

 for the 30th Ayaz Peerbhoy

 Memorial Lecture delivered in

 Bangalore on January 31, 2011)

ly linked to the dearth of talent — that has prevailed since the1990s is the death of planning.In earlier decades, plannerswere strategic thinkers whopropelled the industry as awhole forward. This species isnow nearing extinction, and inthe absence of an institutional-isation of their skills, the over-all value of agencies’ offeringshas declined sharply.

If Lifebuoy can innovate con-tinually and reinvent itself, socan the advertising industry.Employees don’t join compani-es for a salary alone. They wantnew challenges, new opportu-nities to upgrade themselves

argument that fragmentationis wise because it allows invest-ments to be channelled into oth-er businesses and creates abackup for future. Fragmenta-tion severely inconveniencesclients. Clients want to dealwith agencies that can addressa communication problem inits entirety — they cannot en-gage multiple silos separately.

No doubt a few agencies havedone extremely well, and globalrealignments have helped cer-tain others. But for the mostpart, margins have reduced andagencies have been unable tosupport the needs created byfragmentation. All-embracing

Dilbert by S Adams