HUL posted a seven-quarter low sales and Nielsen has lowered the market’s projected growth rate. How bad is the situation, especially in rural markets?
Nothing moves in a linear fashion. There will be moments where you will be in the classical S curve, then you start to plateau and then you have to create another S curve. That is how we build the categories in our business. A company like HUL is in many ways a microcosm of India’s economy. There is so much scope to grow in rural (markets) because our penetration and consumption levels are so low. While our average FMCG consumption in the country is just about $30-35, in rural India it is half this amount. If India has to progress, rural has to progress.
Most companies argue that the five years of PM Narendra Modi were spent on strengthening infrastructure. With his return to power with a stronger mandate, will anything change in the near future?
India is slowly coming closer to becoming a $3 trillion economy. And when a $3-trillion economy grows at 5-6%, it is significant… If we play our cards well as a country, we should be having a $10 trillion economy by around 2032. It could always be plus-minus a couple of years, but this is the trajectory the country has to aspire for. We are at a very sweet spot today and the real power of compounding comes in when you get the benefit of scale… Our ability to lift people out of the poverty trap and take them to the lower middle class, and at the same time, move people from the lower middle class to the higher middle class is the big shift that is happening. I remain very optimistic about India and Unilever as a company is very optimistic about India and the prospects for HUL in India.
What should be the government’s focus to revive demand?
In the longer-term horizon, the country needs to focus on a few key areas. One is rural. We all agree that the equation of over 60% of the population living primarily on 16% of the GDP is not sustainable… The bottom 50% of the population has a very small share of consumption and India cannot progress unless we are able to lift these people and make a substantial difference to their quality of living. The other important bit is the country’s growth can’t be dependent only on large corporations. …equally important are micro, small and medium enterprises. So, whether it is provision of Mudra scheme, or subvention of interest rates, or steps to reduce corporate tax for enterprises with a turnover up to Rs 400 crore, these are the right steps the government has taken.
How fair are budget measures such as higher surcharge on the super-rich?
While our economy is nearly $3 trillion, we are not yet a rich nation. Our average per capita income is just a little over $2,000… When the finance minister talks about the rich having to contribute more, there is merit in the argument. That’s one side of it. On the other side, if you look at the number of taxpayers, especially the statistics of those who declare income of over Rs 5 crore, they are just a handful in a big country like India. It is essential for us to bring more people into the tax net, raise compliance significantly.
For how long can such a ‘Robin Hood tax’ work in India?
At the end of the day, it is all about balancing. The country needs revenue for development. You have the constraints of the fiscal deficit, which, if not contained, could impact the country’s rating. We have massive needs with big money to be put in for development programmes and infrastructure. So, it’s a tightrope walk. As an individual, I don’t mind contributing higher amount of taxes… We also need to create a climate where there is a pride in contributing to the nation’s development by paying taxes…
What is the one crucial thing that the government should do to trigger growth?
The 75-bps reduction in interest rates by the monetary policy committee in last six months, moving from to neutral to accommodative stance, planned Rs 70,000 crore infusion in the banking system, should also give confidence to the banks to start opening their loan books. In a company, there is never one thing but several things which, when done well, result in the virtuous cycle of growth. Similarly, for an economy, it’s not one big reform but a series of actions are required to kickstart the next level of higher growth trajectory.
Why hasn’t GST helped HUL gain share from smaller or non-compliant rivals?
When GST happened, we thought it will become a level playing field because the people who were not paying taxes will come into the tax net. But that really required full implementation of e-way bill the way it was originally envisaged. Then it got a bit diluted. I believe, now, the government will go after compliance on a much stronger note. So, in the first two years of GST, I don’t think there was much impact on the small, local brands.
What really changed, especially after GST?
Today, as a company, we have significantly enhanced speed and flexibility in the business… In the last 5-6 years we have seen slowdown happening because of drought, we have seen the impact on consumption because of demonetisation and we saw the disruption which happened because of introduction of GST. We have seen oil prices at $30 and we have seen oil prices at near $100. We have seen rapid devaluation of Indian rupee and have seen sudden advent of new competitors. In all these changes, HUL has demonstrated immense amount of resilience and has come out stronger.
Should we expect GSK Consumer Healthcare team to shift to Mumbai headquarters upon completion of merger with HUL? Will there be job losses?
We would like a vertical take-off on Day 1, so preparation is under way for that and it’s not easy. In this era of technology, we have operations spread all over the country, so we are not in any rush to physically sit together. For the time being, we are not even thinking of bringing them to Mumbai. Our whole idea is to integrate the operations, make the people feel comfortable, get the business growing and boost the innovation pipeline. We want to make this a very successful integration of two large businesses.