17 WWW.ECONOMICTIMES.COM Viewpoint This last week, the entire world has been watching in awe as the Arab world erupts. Innumerable commentators who are far more qualified than me are ana- lysing the phenomenon to shreds. I ex- pect this will be one of those histo ric wa- tersheds that will forever change any discussions 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 a ware 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, one of the most fascinating reactions I’ve got have been from a Pakistani acquaintan- ce here. “Finally, the Islamic world is in the news for the right reasons, and not be- cause we’re all some kin d of Terror Ali .” For years, we’ve all been hearing, from every kindof government, social activist and academics that whole spiel about the ‘problem of alienated Islamic’ youth. It’s actually an incredibly hoary old story. For years, the Arab world has been in the grip of autocr atic rulers, propped up by implicit and explicit support from other world governments, just to keep that cru- cial oil flow coming through. For years, the poor, the young, the unemployed and the underprivileged, brought up in re- pressive regimes themselves, have sought succour from the only alternative they find, the lik es of al-Qaeda. What those young people in Egypt and Tunisia have done is show up their granddaddies 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 in India, inst ead of hijacking Egypt’s tri - umph for their own narrow political rea- sons, should grab this opportunity. And tell their own young and poor that there is a peaceful alternative to suicide bomb- ing and terrorism. Because the one other thing that has become all too evident is that 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 well repress the Libyans now, but well, nature is catching up with him. In a democracy, there’s this illusion that elections can bring about change , but if the subconti - nent is an example, all elections give us is one bunch of geriatr ic incompet ents or grandiose General after another. The other big headline story this week is the continuing wrangle between the Indian government and Cairn-Vedanta. What have I got left to say on that? It drives me to despair when I see sweeping statements about ‘national interest’ from the oil mandarins. Oh, get real, somebody. It is still absolutely unclear what ONGC’s royalty, where ONGC is a commer cial partner of Cairn India, has to do with a transfer of parent control be- tween two listed companies on the LSE. It’s also totally ridiculous why this has taken more than six months. Until the re- cent spate of meetin gs 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 any agreement by en d of Jan? If the pet ro- leum ministry had to refer it to the Cabi- net, why wait for eternity? This is absolutely not the time to act all macho about national interest. Find a face-saving excuse, clear the deal and be done with it. Or kiss goodbye to the hope that India will attract even a fraction of that $1 trillion for infrastructure. Before everyone calls me biased, hey, I’m going to have to live with the nuclear fallout from international investors, not the pet- roleum ministry, so I have every right to be ticked off. Already, I’m hearing every- day about how much easier LatAm is to invest in. Or Vietnam. Eastern Europe is recovering from recession — and that re- gion has always been a preferred destina- tion. I don’t hav e to tell the readers of this paper that inbound FDI is tanking. International FDI investors don’t care about 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. The report card is like this. Cairn UK took the risk of investing in oil exploration in In- dia when nobody would, and they got a fa- vourable deal with their commercial partner ONGC, when nobody knew there was oil in Rajasthan. It’s selling its stake in Cairn India to another UK-based com- pany , Vedanta, for which ne ither needs GoI 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 terms of a commer cial agreeme nt signed b y ONGC and Cairn India, as a precondition for 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 operat ions of anothe r? It wouldn’t dream of doing so without serious provo- cation. What makes the petro min differ- ent? That’s where it gets all political. If the petro leum mini stry want ed to transfer the case to Cabinet, why waste all this time? If they didn’t ap prove of Anil Agarwal, which seems to have been the case originally, they should have found a legal and transparent reason to say so, and scuppered the deal in August last year. But no, they dither, and posture in public, and get all rhetorical. Now, they’re dug in their own hole: neither ONGC nor the petroleum ministry can backtrack from what is fast becoming an untenable position without losing politi- cal face, and so have passed hot potato. Don’t dither. It spooks people who sink zillions into the arid ground, literally , for 20 years or more. Dithering, it seems will be the lasting epitaph for this govern- ment. Sigh. [email protected] Oil Makes the World Go Round Letter From London | Sudes hna S en SALAM RAJEEV BAKSHI Ibe gin by asking some provoca- tive questions: why is today’s advertising industry unable to acquire the best talent? Why is the industry fragmenting com- munication options into differ- ent businesses and not provid- ing complete solutions to clie- nts? Why are communication value-additions dwindling, as the 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. It has managed this simply by re- inventing itself. Lifebuoy has launched new products such as hand sanitisers that have done well for the brand and for the business as a whole. The fragmen tatio n of the ad- vertising industry is unusual: the emergent p arts of the busi- ness — such as digital commu- nications and PR — are being set up as separate enterprises. What advertising really needs to offer clients is a comprehen- sive communications solution. The creatio n of silos will never be able to produce the neces- sary value addition or secure additivemargins. Leadership: I see a complete lack of it. I don’t want t o com- ment on the er osion 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 is helping professionals to do that. Clients need new perspec- tives and ideas from intellec- tual equals. These are what the industry must strive to provide. New investments and new en- trepreneurial leadership are critical. I lament that the adver- tising industry is not doing as well as it should. It should draw upon its rich le gacy , and start doing things differently. Spin- off enterpris es — such as digi- tal communications — need to be reintegrated into advertis- ers’ portfo lio of offering s, peo- ple need to be reskilled — there is much they must relearn, and their discussions with clients need to become much more comprehensive. Counter-intuitive as this may seem to current trends, it is communication solutions have not been created. Therefore, my thesis is that the advertising in- dustry peaked in the late 1980s, liberalisation in 1992 extended its life cycle by a few more years, but at the same time, the compe- tencies of people j oining the profession in the 1990s were generally found to be markedly inferi or to those of profes sion- als from earlier decades. This erosion of talent has only inten- sified since. Advertising is all about inno- vation and clever representa- tion, but I haven’t seen truly im- pre ssi ve exa mple s of thes e qualities so far. There has been no serious attempt by the indus- try to invest in people, and de- spite some internal training programmes, the industry has the highest turnover rate. An- other significant trend — close- ly linked to th e dearth of talent tising industry with two op- tions: consolidation or frag- mentation. I disagree with the argument that fragmentation Advertising Agency, Reinvent Thyself Perspectives Lamenting the dwindling fortunes of an industry once hailed for its creativity, talent and leadership RANA KAPOOR I ndia is at the cus p of its pre-cr i- sis 9% growth trajectory, and is extremely well-positioned for the next growth cycle. While there is broad consensus that the country must continue to g row rapidly , and will soon cross the ‘double-digit- growth’ barrier, there is also an emerging focus to make this growth sustainable and inclusive. Financial inclusion has become a national and a government impera- tive in the last few years, and the burning discussions towards finan- cial inclusion have definitely reac- hed a crescendo this year with in- creased focus from the government, various policymakers and some genuine progress by the private sec- tor and financial institutions. However, while there is a growing awareness and agreement on the im- portance of finan cial inclusi on, the same consensus doesn’t seem to re- flect around its ‘definition’ and the ‘execution process to achieve’ finan- cial inclusion. It is also important to appreciate that the objective of pro- viding afforda ble access of suitab le financial services to the financially excluded is to ensure ‘economic de- velopment and p rogress of the fi- nancially excluded’ and that ‘inclu- sion of the exclude d’ is only a means to an end and not the end in itself. The question one needs to answer is not only ‘how to provide banking services to the financially excluded’ but ‘how to ensure economic pro- gressof thefinanci allyexcluded ’. Addressing the first question, where the predominant focus and ef- forts are underway, it is restrictive and with a limited vision. This ‘di- rect interve ntion model of bankin g the unbanked’ through either bran- chless banking, business facilita- tors (BF) or business correspond- ents (BC), etc, model is fraught with challenges for financial institutions including high barriers to entry, long gestation period and high go-to- market and servicing costs. This is further aggravated with a lack of awareness and trust amongst the fi- nancially excluded regarding the benefit sof thebankingsystem. Hence, reaching out to over 700 mil- lion citizens across six lakh villages who don’t have access to the formal banking system is likely to be a Ha- numanian task. In my opinion, even with the implement ation of the UID and large-scale utilisation of mobile banking and other technologies, achieving financial inclusion throu- gh this mode would take the better part of the next 2-3 decad es. In my judgment, the more viable and market principles-based alter- native is to address the ‘how to ensu- re economic development and pro- gress of the finan cially ex cluded’. The solution is strongly predicated on unleashing the untapped poten- tial of the micro, sma ll and medium enterprises (MSME) and unorga- nised segments by improving their bankability and, thereby, the com- petiti venes s of this large segmen t. This is effectively a ‘multiplier im- pact’ model, with focus on economic development and progress. The MSME segment, constituting around 26 million units, contributes 45% of indust rial outp ut, 40% of ex- ports, employs 60 million people and creates 1.3 million jobs every year, and ensures balanced regional and socially-inclusive growth. Innovative business models for MSMEfinancing: Globally,commer- cial banks are the main source of fi- nance for MSMEs. However , consid- ering the nature and characteristics of the industry , access to finance re- mains a key concern area. This has resulted in the ever-increasing fi- nancing gap for MSMEs, leading to a potential loss to the national econo- my. The traditional approach to MSME financing that was based on rigid credit assessment frame- works, limited delivery channels and hierarchical structure for deci- sion-making needs to be replaced with new flexible models for MSME financing, to ensure agility and achieve cost efficiencies. New-age banks are moving to a more flatter, horizontal and func- tional structure, to lead to faster, time-bound and objective decision- making processes, while financing MSMEs. This should be further complemented by leveraging tech- nology to make the application, ap- praisal and sanctioning process fas- ter for the MSMEs. The issue of high c ost o f acquis i- tion and servic ing of MSMEs can be addressed through innovative prod- ucts that are more suitable for MSMEs. The plain-vanilla standar- dised products are being replaced by structured products, such as receiv- able financing, cash flow-based lend- ing, asset securitisation, guaran- lighted through industry forums. Targeted investments are required to be made to create affordable ind- ustrial areas, industrial parks, tech- nology incubators, with integrated infrastructure facilities, under MSME 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, and cultivated them to national and glob- ally-accepted levels with strong geo- graphic appellation, traceability and trustmarks evolving. Also, suitable policy frameworks should be devised to align investors from public, private, PE funds and other institutions that approach MSMEs for financing with diverse offerings and expectations. A posi- tive initiative towards improving the existing policy , legal and re gula- tory framework is the World Bank- led multi-agency project on financ- ing and develo pment of MSMEs be- ing implemented by Sidbi. Knowledge-driven solutions: Most MSMEs are run by entrepreneurs who are adept in technical knowl- edge, but lack the financial, legal or managerial expertise, and are un- awar e of financ ing option s or gov- ernment schemes available to scale up their enterprises. To address this, at Yes Bank, we have made con- scious efforts towards this, and knowled gebankingisoneof ourkey pillars, through which we focus on the MSME sector, with the objective of creati ng a knowledge-bas ed plat- form for MSMEs, that enables shar- ingof globalbestpracti ces,analyses industry and sector trends, and ap- plauds successes in the diverse MSMEuniv erseof India. (Theauthoris founder ,managing director and CEO of Yes Bank) tees, cash management services and advisory services, to provide a com- prehensive solution to MSMEs. The cluster-based approach, throu- gh strategic partnerships with local and national trade associations, can help banks access MSMEs and de- veloping customised propositions. Countries such as Taiwan, Hong Kong and Italy have shown that a cluster-based approach can be effec- tive in competing in export markets. The rigid risk assessment models need to be replaced by new techniq- ues to distinguish between high-risk and low-risk MSME borrowers. There is a huge opportunity to bring the large n umber of MSME un its under formal bank- ing, through a more flexible and intelli- gence-based credit appraisal metho- dology for MSMEs with specialist rela- tionship and credit managers. Policy frameworks and strategic initia- tives: Appreciating co nc ern s o f t he MSMEs, the government has taken anumber of progress ive steps to de- velop a conducive environment for devel opment o f MSMEs. Focused steps were taken by the government in response to the global crisis, in- cluding refinance facilities, special window to augment credit flow to MSMEs, directing PSUs for timely payments to MSMEs, enhanced cre- dit guarantees, etc. As the economy tides over the financial crisis, a heal- thy business ecosystem should be created for MSMEs, based on mar- ket principles. Industrial infrastructure, specifi- cally for MSMEs, remains inade- quate, and has been repeatedly high- MSMEs: The Biggest Inclusion Opportunity Allowing 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 Matter How to ensure economic progress of the financially excluded Large corporates & MNCs 1% SMEs 25-30% MSMEs & informalsector 65-75% 10-15 yrs 2020-25 2030-40 Investments,bankingfocus Policy, reforms Multiplier impact: Focus on economic development & progress Missing middle Employed within MSMEs & unorganised sectors Financially- excluded population (~700 m) SOURCE: IFC report, Yes research, estimates With 26 millionunits, 60 million staff and 1.3 million new jobs every year, MSMEs ensure inclusive growth KAMAL Crossword 4879