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Sanjiv Mehta: ‘Unprecedented inflation in several commodities … may see tapering by mid-2022’

'Inflation is not just in India, it’s a global phenomenon. I believe part of the inflation is not that the demand has been so high, that it is a demand-led inflation,' said Sanjiv Mehta, FICCI President and CMD of Hindustan Unilever Limited (HUL).

Written by Sunny Verma |
Updated: December 22, 2021 5:33:11 am
Sanjiv Mehta, Hindustan Unilever LtdSanjiv Mehta, chairman and managing director of Hindustan Unilever Ltd.

Sanjiv Mehta, FICCI President and CMD of Hindustan Unilever Limited (HUL), said the government has to create enablers to prop up demand that in turn would lead to virtuous cycle of investment and growth. In an interview with Sunny Verma, he said MSMEs need support in terms of financing and technology.

Inflation is posing concerns, is it transitory or entrenched?

Inflation is not just in India, it’s a global phenomenon. I believe part of the inflation is not that the demand has been so high, that it is a demand-led inflation. I believe it will be more because of supply constraints. And part of it could also be speculative. My assessment is by mid of 2022, we should start to see some tapering of inflation.

In the FMCG segment, we have seen a lot of price rises over the last one year. Has it impacted demand and are manufacturers able to pass it on?

This is a bit unprecedented inflation because it’s happened in several commodities all together. And we must also accept that per capita consumption of FMCG is only about $40-45, and the rural will be half of that. So when you have commodity prices increase, it would impact some level of consumption, because many rural households which are on the marginal side will allocate a certain sum of money for certain categories. And if the price goes up, then to that extent volume goes down. And also we have many price point packs. On price point packs, you don’t change the price but you adjust the quantity inside. And when you do that, then also your volume goes down. Now, ability of companies to pass the price: it depends on various factors. First is, a company like HUL, we don’t have a one-to-one correlation between commodity price and end price. We look at all levers, how do we drive our cost saving agenda much harder. How do we play the portfolio. Then we look at it that we maintain the price value equation. Consumers don’t look at this price. They look at price values. So we look at that now. Also importantly, capacity to take a price increase also depends on the strength of your brand. If your brands are stronger, you can take more price increase because the consumers will still stick to you. If your brands are not strong and fragile, then the consumers will switch if the other player has not changed the price or taken a lesser price. So brand power becomes a really important indicator of your capacity to take price.

High raw material prices have hit MSMEs. What can be done to alleviate their pain?

This is one area where FICCI has been focusing a lot because MSMEs, by the very nature, are more fragile and the pandemic has impacted them. So MSMEs need support in terms of financing, MSMEs need support in terms of technology, and MSMEs need support in terms of talent. And if we have to create a very robust ecosystem of MSMEs, we have to strengthen them. Now there are some MSMEs who are part of large companies’ ecosystem. Like our MSMEs, who are attached to us (HUL), we will protect, but the standalone MSMEs need much more support and that’s where government intervention could help.

What is your diagnosis of private corporate investment remaining lackadaisical, despite sharp cuts in corporate tax rates?

I’m glad you raised this question First, I think corporate tax rates, we should look at it from country’s long-term competitiveness. Our corporate tax rates were much higher and now they have become competitive. And many times when you do the reforms, the impact you see is a bit later. Now, coming to private capital spending, there was a period when a lot of capacity got created. And then we went into this twin balance sheet problem. Now, if you look at it, the banks are in a much better space. They have to a large extent sorted the NPAs or provisioned them. They’ve also brought in additional capital, and the corporates have also been able to deleverage. They’ve been able to deleverage, have raised capital and their profitability has improved. So we used to keep hearing this twin balance sheet problem. Now that lexicon more or less faded away. And today, the capital investment is about 60-70 per cent. Once the demand moves up, I’m sure there is no businessman in the country who would like to lose sales. So then the capital investment cycle will again come back.

One key thing from what you said is that ‘once demand comes back’. Now will it come back on its own or is there is a need to support it?

Now what will be required, of course, the government has to create enablers to prop up the demand and, you know, the virtuous cycle of growth happens when you get into demand, which could be whether it is self-propelled or whether it is being facilitated by the government, which requires more capacity, which will result in more livelihood, which will result in more money in the hands of consumers, more spending and then the virtuous cycle starts. So that is where the government has to ensure that the virtuous cycle keeps humming.
I don’t think that the risk appetite of Indian businesses has gone down. Indians are good entrepreneurs. No business person worth their salt would like to miss sales opportunity. If we’ve been able to manage the pandemic pretty well, and if we can get a couple of years of sustained growth, good growth, you will get into the virtuous cycle.

Your counterpart CII had recently recommended to the government that there should be fiscal stimulus of Rs 3 lakh crores. What’s your view?

Without getting into the numbers at this stage, we have to be very clear that the economy is in the process of recovery. Now, if you look at the different components of GDP, the private capital investment is yet to kickstart. Similarly, private consumption is till tepid. So during the intervening period, the government spending will have to play the major role. So, very clearly there should not be a rapid reduction of deficit. There should be a glide path. The good bit is that the government’s revenues are robust, so that gives them more firepower. And the other bit is also that the disinvestments have to pick up.

The Budget is ahead of us, what are the two big ideas or suggestions that you have?

What the country needs is obviously to sustain the growth rate and to have a more inclusive growth. That’s what we need. The good bit has been that as a country, what we lost as a GDP last year, because of the pandemic, this year, we will be recovering that and from all likelihood the growth this year will be crossing 9 per cent. That’s a good sign. And there are some good indicators, even tax collection has been very robust. And this tax collection, I’m not looking at it from the lens of last fiscal but also compared to 2019. It’s been about 30 per cent tax collection increase for the first seven months. Then FDI has been very robust. In exports, clearly looking at like it will cross the $400-billion mark, which is very good. But I think the most important bit has been the speed with which the country has been able to vaccinate its people — 1.3 billion people and over 50 per cent of eligible population getting fully vaccinated augurs very well for the country.

Does Omicron pose any threat to the economic revival?

Very difficult to say. Some countries (in Europe) are putting in restrictions because number of infected people has shot up significantly. So very difficult to say to what extent it will come into India, how will it multiply, but we are in a much better position this year. And that’s because of both the vaccination and also the health infrastructure. Whether it is the number of hospital beds, the ventilators, the oxygen that’s far better supplies. So while the risk remains, and I think none of us should assume that this is over.

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