High inflation has impacted consumption and market volumes have gone down, especially in the rural economy, but it is likely to start easing from mid-2022 as it is largely due to supply side constraints or speculation, Sanjiv Mehta, newly-elected president of Federation of Indian Chambers of Commerce and Industry (Ficci) and CMD of Hindustan Unilever (HUL), said on Tuesday.
In an interview with FE, Mehta said that today the situation is much better and there are many green shoots in the economy, like tax collections have been robust, exports are looking good, lots of FDI have come in, so structurally there’s much headroom to grow and private capex would kickstart once the demand revives.
“What I am saying is that today the situation is much better; corporates have de-leveraged, banks have been able to enhance their capital, so it’s a good environment where once the demand kickstarts, I see no businessmen who would be wanting not to miss the sale opportunity. And I don’t think even the risk appetite of Indian business has gone down,” he said. Mehta added that till the time private capex gets started, the government would need to do its bit and keep up the spending.
“We have yet to get into that virtuous cycle of growth, where the demand is robust, the capital investment happen, more jobs get created, there’s more money in the hands of the people and more investment takes place,” he said. Talking about his expectations from the upcoming Union Budget, Mehta said that the last year’s Budget, despite all the constraints, was in many ways a dream Budget and the government should continue to build up on it.
“To support rural consumption, the food subsidy programmes should continue and consistency in policies should be maintained,” he said. Talking about his company, Mehta said that inflation does impact volumes but so far he’s not seen any discernible downtrading as the company is present across all categories and has multiple brands. “Rural demand still looks tepid from market volume point of view and there’s inflation in many categories.
Volume would certainly go down if there’s a price increase,” he said. On other major policy issues, Mehta said that on e-commerce, the government should maintain status-quo as it has benefited all the stakeholders and, most importantly, it brings technology, which is so important.
“We have been able to build massive capacity and there’s scope to build enormous digital capacity here,” he said. With regard to the production-linked incentive schemes, the HUL CMD said that the government has done a very good thing by coming out with such schemes as it creates scale and gives competitive advantage, which is very necessary.
“PLI schemes give you the benefit of scale, and scale is very important to create competitive advantage; because if you’re looking at it from a global scenario, you will have to compete on cost service quality and innovation; so, scale gives you huge benefit when it comes to cost, and that’s what a PLI scheme will enable you to do,” Mehta said.
When pointed out that there has been a lukewarm response to some of the PLI schemes, he said that we should give it time as it is still early days and if in the process it is found that time period of these schemes needs to be extended then he’s sure the government would do it. “You know whenever you look at reforms, I think it would be a fatal mistake to look at it in such short lengths. So let’s not come to a conclusion at this stage, it has just been announced,” Mehta said.