Recession risk: Consumers scared to spend, says Sanjiv Mehta, CMD – Hindustan Unilever Limited

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Published: July 1, 2020 7:30 AM

Speaking at the company's 87th annual general meeting, Mehta observed the risk of recession remains real though it should not be taken as a foregone conclusion.

However the question remains whether these are sufficient to kick-start a virtuous spiral of growth or whether that would require a substantive demand-side stimulus.However the question remains whether these are sufficient to kick-start a virtuous spiral of growth or whether that would require a substantive demand-side stimulus. (Representative image)

The fear of losing their jobs and shrinking incomes have made people circumspect about spending, Sanjiv Mehta, CMD, Hindustan Unilever Limited (HUL), said on Tuesday.

Speaking at the company’s 87th annual general meeting, Mehta observed the risk of recession remains real though it should not be taken as a foregone conclusion.

The HUL chairman also pointed out the steps taken by the government were necessary and would have a trickle-down effect on demand. However the question remains whether these are sufficient to kick-start a virtuous spiral of growth or whether that would require a substantive demand-side stimulus.

“Given the limited fiscal space, it is not easy for the government to have a large demand-led stimulus and it must be concerning the government that if they go down this route, a large part of the stimulus could end up as savings rather than being spent to generate demand. Having said that, the government should keep a close watch on the demand situation and step in unhesitatingly if it does not pick up in the next few months,” Mehta stated.

The HUL chairman added that whether economies can avoid the recession or not, the path back to growth will depend on a range of drivers, such as the trajectory of virus, the effectiveness of containment efforts, the economic steps taken by the governments, the reaction and behaviour of the firms and consumers, the degree to which demand will be delayed or lost, whether the shock is truly a spike or lasts, or whether there is a structural damage to the economy.

The HUL chairman told shareholders the immediate impact of the national lockdown has been severe leading to supply chain constraints. “We shortened the entire planning to execution cycle to a daily horizon and ensured a dynamic response to an everyday changing environment. HUL’s trucking capacity was restored at twice the rate of national trucking recovery, thereby eliminating key logistics bottlenecks,” Mehta said.

The merger with GSK Consumer Health’s (GSKCH) nutrition business, Mehta indicated had been consummated smoothly despite the lockdown.

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