The bellwether of FMCG industry HUL is again talking about recession albeit because of different reasons this time. The coronavirus pandemic is threatening the growth of many industries, and FMCG is not immune either.
A year ago, the FMCG slowdown made headlines merely days after Hindustan Unilever, which is usually very cautious in its commentary, made a remark that alarmed analysts and industry watchers alike. “While FMCG is recession resilient, it is not recession proof,” the management had said in May 2019, following March quarter results. A year later, the bellwether of FMCG industry HUL is again talking about recession, albeit because of different reasons this time.
The coronavirus pandemic is threatening the growth of many industries, and FMCG is not immune either. Speaking at the company’s 87th annual general meeting, Sanjiv Mehta, chairman and managing director, HUL said that the people are very cautious of spending because of fear of job loss and drying up incomes, he said on Tuesday. The risk of recession is real, Sanjiv Mehta said, however, it should not be taken as a foregone conclusion.
While last year’s FMCG slowdown was also because of a demand slump largely emanating from rural India as people had lesser money to spend, this time, the situation is no different but the catalyst varies. As the coronavirus broke out, the government had imposed a nationwide lockdown due to which, there was practically no economic activity for over two months and people remained confined to their homes. The situation has only worsened since then and the threat of job loss and pay cuts loom large for many. RBI’s latest consumer confidence report and several others including a Kotak institutional Equities report of April 2020 have already said that people will curb discretionary spendings in the coming months as well.
Meanwhile, HUL said that the government must now follow the demand situation. “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,” Sanjiv Mehta said. Further, while governments are trying to improve the growth situation, it will depend on a myriad of factors such as the trajectory of coronavirus, the effectiveness of containment efforts, the reaction and behaviour of the firms and consumers, among others.