8/8/2019 Hemant Bakshi Article in ET-Oct 25, 2010

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THE ECONOMIC TIMES MUMBAI MONDAY 25 OCTOBER 2010 17VIEWPOINT

IF YOU are the kind of person who likes playing military strategy games,this might be a good time to make a world map, put nice little red, blue andyellow pins for political, social, economic and financial types of events,

and see the fascinating new patterns that are emerging.So Barack Obama is on his way to India, which visit is likely to be, when not

overwhelmed by his charisma and Michelle Obamas glamour, fraught withtension over that crucial word outsourcing. That will have to be put in the

balance against whatever political concessions Mr Obama chooses to make onthat other key word, Pakistan. The way the pins are looking to me, the politicallooks set to overshadow the economic, which will be unfortunate.

Because, currency wars or not, its still all about the economy, stupid. Evenif the BSE is roaring, Coal India was a super-success IPO, and nobody in Indiawants to be bothered about silly things like global fiscal imbalances. A word ofwarning though. Diwali, for varieties of reasons such as the timing of the bo-nuses that traders and bankers get, is always a bullish time. Around Christmasis when they start selling, to ensure they get those bonuses. Id be surprised ifCoal Indias share price doesnt do a yo-yo act over the next few months.

Anyway, to get back to boring things like global fiscal policies, thats the realreason why this IPO has been such a super success not the India or Coal In-dia growth story. At the G20 finmins meeting in Seoul, these shifting balancesof power looked less like a pattern and more like a crazy kaleidoscope. Every-one vowed, promised and agreed not to use currency as weapon of tradedestruction. That means all of nothing, since they all vowed various things inthe past, but everyone is happily since following their own different policies.

Oh, and finally, Mr Mukerjee is happy, because emerging nations have nowmore power in the IMF, and two more seats on the board. No surprises, thoseseats come at the cost of Europe, which as a region, is dwindling, both in politi-cal and economic clout. All very well, but the critical question is: what is theIMF expected to do? Its global role has become extremely vague, and nobodyis sure it can do anything much more than moral suasion.

In the face of the crisis in 2008, the G20, or group of 20 nations, became theforum where decisions were taken. Now, that grouping is drifting further andfurther apart. The US wants to print more money and spend its way out of un-employment, and generate more demand. It wants China to save less, andstop holding massive surpluses.

China doesnt, as usual, care much of a fig for what the rest of the worldwants them to do internally, and wants the Americans to stop flooding theworld with dollars. Europe, led by Germany, and mostly in France, and UK aremoving in the completely-opposite economic direction. Theyre slashingtheir budgets and jobs, and tightening their belts. Everyone, in Europe and theemerging world, is blaming both US and China for the current mess. France,which will lead the group from next month, has its own views about how theworld should be run.

Oh, and global banks are back in the business of pulling the strings thatmake countries and economies dance to their tune. Nicolas Sarkozy recentlysaid it isnt the global markets, but global speculators (read bankers) whomake and break international policies. Nobody knows whose approach willwork, and what will fail completely. Economists and analysts continue to ar-gue into forever, just like different governments.

In UK and continental Europe, governments are taking a massive risk ofwidespread social and economic depression, to cut their sovereign debts. InUS, nothing seems to perk up employment, Mr Obamas political base is erod-ing, so theyre getting shriller about everyone and everything else globally. Sowhat kind of patterns are emerging on the world map? Nobody knows forsure, except that China, fairly quickly, will have the size and wealth of the en-tire developed world today. The US could spend, borrow, or change its mindand start saving, but it should eventually be out of the woods, though on theway, Mr Obama may lose his job, the country could go all jingoistic, both polit-ically and economically, and it might never regain its superpower status.

Europe, in the days of its fading glory, could end up as a grouping of ratherpoor nations struggling to maintain their welfare states, or if things work out,slowly grow its way back to being a middling world power. Its unlikelythough, that either UK or Europe is going to be in any shape to back any moreAmerican militaristic adventures around the world.

If Im not mistaken, the kind of people who do scenario planning are work-ing on possible futures where we all live in a Global Republic of China. I dont

think the Chinese want to be bothered, as yet. Still, it might not be that bad,given that were currently living in a world ruled by Wall Street. Again.

sudeshna.sen@timesgroup.com

Wall Street tothe Great Wall

L ETTER F RO M LONDONSUDESHNA SEN

EFFICIENCY and sustainability are the twin

mantras to emerge from the economic slow-down. In this recovery, smart infrastructure is

expected to play an important role. In India, the gov-ernment has made it clear that infrastructure will be anarea of sharp focus ahead. And within infrastructure, itwill aggressively pursue its goal of Mission 2012: Pow-er To All a blueprint that encompasses generation,transmission, distribution and conservation to en-sure sufficient and quality power at an optimum cost.

Interestingly, what seems like an ambitious goal iswithin reach with one of the most potent concepts ofall times: the smart grid. This state-of-the-art technolo-gy integrates a power grid system into a single, interac-tive real-time network to ensure improved perform-ance and reliability while eliminating waste for a lowerenvironmental impact. In fact, smart grids optimisenot just generation and distribution but also consump-tion. And with their ability to consolidate power fromconventional and clean energy sources, they reduceCO2 emissions as far as is technically feasible.How is this possible?:The traditional power grid is basedon centralised generation plants that supply consum-ers via long-established, unidirectional transmissionand distribution systems. In contrast, a smart grid is anadvanced version that not only delivers reliable suppli-es on demand but can also receive power of all qualit ies

from all sources both centralised and distributed.For instance, visualise a home where residents keep

track of their energy spending. A smart meter helpsrun the washing machine during non-peak hours tomake use of lower tariffs. Whats more, the house hassolar panels and a mini wind turbine installed on theroof. So, instead of using energy from the grid, the resi-dents can bank on their own energy production, andeven sell the extra energy to the grid. Though this con-cept sounds futuristic, experiments across the world

show that it is possible and has become popular in theUS, Germany, Spain and Italy among other nations.

What makes smart grid special is that it is environ-ment-friendly. According to a research sponsored bythe US government, improving the efficiency of the na-tional electricity grid by 5% would be equivalent toeliminating carbon emissions and fuel use of 53 millioncars. This digital distribution not only negates waste butalso opens up the market for alternative energy pro-ducers of all sizes, by decentralising energy production.Powering the world: During last years economic crisis,US President Barack Obama passed an $11-billion st im-

ulus package for smart grid technology and for expand-ing transmission to renewable-rich areas. With 30%rise in funding, the project will include smart meters.

In Germany, the Minimum Emission Region projectis being deployed on a pilot basis in the southern region

of Karlsruhe-Stuttgart, one of the countrys most den-sely-populated areas and one of Europes biggest man-ufacturing hubs. The project aims to minimise CO2emission by integrating clean energy sources such as so-lar energy panels, wind turbines and fuel cells. The pro-

ject was recently awarded E-Energy: ICT-Based Energy

System Of The Futureby the German federal ministry ofeconomy and technology. The project will involve1,000 homes, and will allow consumers to monitortheir energy consumption and CO2 footprint, alterconsumption pattern according to price and availabili-ty, and sell self-generated power back to the power grid.India: On its way to smarter grids: According to a KPMGstudy, even in the current low-growth scenario, Indiawould need to raise its installed capacity to at least 183gw by 2012 from the existing 132 gw. The challenge is

the countrys transmission and distribution (T&D) loss-es are among the highest, averaging at 50% after takingpower theft into consideration. Installing smart grid isthe best way to rein in the losses and ramp up generationto meet energy needs of the growing economy.

The government initiated the Accelerated PowerDevelopment & Reform Programme (APDRP) in 2001,aimed at strengthening sub-transmission and distribu-tion networks, thus reducing aggregate technical andcommercial (AT&C) losses. In 2008, the RestructuredAPDRP (R-APDRP) was released with revised terms,with focus on actual and demonstrable performance in

terms of sustained loss reduction. Till date, 27 stateshave either notified or constituted their regulatorycommissions with 100% feeder metering in 20 states.Karnataka taking the lead: In a first of its kind project inthe world, the Karnataka Power Transmission Corp(KPTCL) has decided to strengthen its power networksand the constituent distribution utilities. With a con-sumer base of almost 16 mill ion and plans to add about10,000 mw power in the next few years, KPTCLs T&D ismultiplying every year. The integrated Scada solutionwill include monitoring 867 T&D stations with one mil-lion input and output points across Karnataka from asingle control room in real time in Bangalore.

The project will help KPTCL manage distributed gen-eration from independent power producers, non-con-ventional energy producers and mini hydel plants inthe KPTCL grid. A significant step in making the gridsmart, this project will also help in reducing line losses,voltage irregularities and energy billing.Towards a sustainable future: The world over, the re-sounding cry today is for renewable energy sources thatare also cost-efficient. Therefore, there is no better timeto get smart and turn green than now. In this context, asmart grid is the right way forward.

Being a new concept, research and implementationis happening at almost the same breath. In this context,

countries like India and China, which need to increasetheir power supply exponentially each year, can set ex-amples using smart grid, especially for newer networks.

Howsoever we try, there are no shortcuts to reach thedual targets of meeting energy needs while stayinggreen. Plugging the leaks and maximising efficiencieswill be the way forward for a long time. In all probability,turning smart has never been more advantageous.

(The author is head of power systems business at ABB India)

PERSPECT IVES

Powering ahead the smarter way

PrakashNayak

A smart grid integrates a

power grid system into a

single, interactive real-time

network to ensure improved

performance, eliminating

waste for a lower

environmental impact

WE WERE going to a rural marketdeep inside Orissa, 150 km fromBhubaneswar. Rural trips arepreceded by elaborate rituals:stocking bottled water, topping

up cars fuel tank, packing lunch, and setting outearly in the morning for a long and hard day.

We drove down a fantastic four-lane highway,bypassing many small towns, and in 2.5 hours, reac-hed a small town. From here, we turned off thehighway to go to Barasaat, our destination, a tiny vil-lage with only 400-odd households. It was 15 kmfrom the highway, connected by a narrow but met-alled road. We reached our destination in another 30minutes, clearly a couple of hours ahead of plan.

You cannot escape the poverty in this small vil-lage, but it is not as debilitating as one would haveimagined. And there are signs of progress every-where, especially in the shops we visited. Expensiveskin creams in small packs, floral perfumes withfancy names, baby products and even hair colours.The retailer is surprised when I ask him if he sells anyof these in the village. Why would I stock them itthey dont sell, he says. Not a smart question I guess.

Mobile phones are all-pervasive: our salesmanuses it to not only check on stock availabil ity with thedistributor and book orders, but also to warn his wifethat he is unlikely to return home on time. His callertune is Waka waka. I am surprised at his comfortwith mobile technology; I just about restrain myselffrom asking him to fix my phone that keeps switch-ing networks while we are there.

We need to expand our network in rural areasand need more people from these parts to work forus. So how much should we pay them, I ask andthe response immediately is: at least .120 per day.The reason for such a specific response: thats theamount you get through NREGA, therefore, any-thing less than that just does not cut ice. There goesanother myth of lowly-paid people in rural areas.

A few days later, I am sitting with my board col-leagues and discussing future plans. And the conver-sation turns to the great rural opportunity waitingfor us to tap. Where does urban area end and ruralarea begin? Travelling from Bhubaneswar to Bara-saat, you would find it difficult to say. In fact, the lines

between urban and rural areas, from a marketingand distribution point of view, are blurring rapidly.

There are many reasons for this, but connectivityis the key. Roads built in the last decade have had asignificant impact in blurring these lines. Cellphoneshave also connected rural to urban parts. Media onmobile is changing pop culture: my nine-year-oldson in Mumbai and the 21-year-old salesman in ru-ral Orissa have the same ringtone. Probably both ofthem saw Shakira do the Waka in a popular TV ad-vertisement and downloaded it on their phones.

Asilent revolution has taken place. Rural literacyhas gone up nationally, but as in many other things,averages hide more than they reveal. If you leaveout four states where the progress has been slow, inrest of the country, literacy in rural areas has in-creased dramatically in the last five years. Even more

interestingly, female literacy has outpaced overallliteracy in these states. This is probably the single-largest drive towards educating people ever in thehistory of humankind.

Even more interesting story is that in a recent,large-scale survey carried out in rural India, the sin-gle-biggest concern for people was childrens educa-tion, followed by healthcare and housing. Food, em-ployment, etc, came much lower. Not only are weseeing a rapid rise in education levels, but this trendwill accelerate. And as we all know that education isprobably the greatest leveller and connector.

All of these have just brought rural India closer tourban India. It would be inaccurate to say that thereare no differences between urban and rural markets.But the divide is not so sharp any more: lines have

blurred and the differences will come down further,faster than we think.

This has significant implications for the sales andmarketing profession. And my answer to the eternalquestion of how to market in rural areas is slightlyprovocative: we dont need to develop rural market-ing models. We need to find a way of providing urban

brands, products and servicing models to rural India.Consumers in rural India have the same needs andaspirations as their urban counterparts. The big chal-

lenge and opportunity is to provide access to theseproducts and services in rural areas.

Access can take many forms. Sachets are a greatexample of providing access. They deliver the sameproduct and the same benefit without compromiseand yet are accessible to every Indian. Service provid-ed by telecom operators is the same, whether used bythe poorest or the richest. And incredible access to thisservice is via prepaid cards for as low as .4.

As rural India starts to become more and more likeurban India, providing distribution of products andservices across the hinterland is a big opportunity.However, the distribution challenge in the country isimmense: more than six million retail outlets spreadacross 6,38,000 villages. More than 85% of these vil-lages have a population of less than 2,000.

The challenge seems insurmountable. Most orga-nisations have leveraged traditional wholesale mod-el to get their products across to these stores. Howev-er, more and more rural retailers want a fullassortment of products, not a limited range: regularfrequency of service and convenience of door deliv-ery, credit to fund their cash-flow needs, all the pro-

motions, fair prices, merchandising and activationsupport for their shoppers. In many ways, they wanturban model of servicing, not compromised servic-ing, just because they are in rural areas.

The challenge for suppliers is the small size of eachvillage with low throughput per outlet. Combinedwith higher cost of distribution since each village issome distance away from the location of distributors,makes high-quality distribution unviable. In mostcases, it severely constrains the ability of most compa-nies to reach stores in rural areas, and even when theydo, it is with compromised servicing models. And yet,as the environment changes, there are new opportu-nities that are becoming possible.

New technologies are enabling lower-cost distri-bution models. Its now possible to geo-tag every vil-lage and use logistics models to develop most opti-mum routes. This can be done sitting in Mumbai with

better information than is available to a distributor 15km away from the village. However, the challenge forthe sales professionals is to find the equivalent of thesachet that could transform this landscape.

There are a number of organisations, consumergoods, telecom, financial services, etc, all trying to re-ach the same customer, but the very small through-put per outlet will remain a barrier, restricting the via-

bility of high-quality servicing in rural areas. Indivi-dually, it will take us a long time to penetrate thedeepest, smallest rural markets at prohibitive costs.

However, if some organisations join hands, thethroughput in every individual outlet would be ade-quate to get to a viable size. The average size of a storein rural India is a third the size of an urban store. An al-liance across a few category leaders would ensurethroughput from every rural store equals urbanones. This could be the gateway to rural India.

So what is the challenge in constructing such apartnership? The biggest challenge will be mindset,the dominant logic that we must all own our front-end sales system. In many industries, assets that wereproprietary are now being shared. ATMs becameubiquitous when banks started sharing this asset. Themobile infrastructure reached scale when the mobiletowers were shared. Today, this seems a no-brainer

but it wasnt like this a few years ago.Access to rural India through partnerships is a real

possibility and a huge opportunity. The need of thehour is for the industry to partner, share assets, over-come traditional mindsets and take the high road to

growth for the consumers and industry.

(The author is executive director for sales andcustomer development at Hindustan Unilever)

Coopetition will allow industry to overcome small throughput inrural outlets and capture a market that mirrors urban aspirations

Asset-sharing model toservice rural consumer

Hemant Bakshi

As rural India

starts to

become moreand more like

urban India,

providing

distribution of

products and

services across

the hinterland

is a big

opportunity.

However, more

and more

rural retailers

want urban

model of

servicing, not

compromised

servicing, just

because they

are in rural

areas

Illustrations by SALAM

*