Recession may Bypass India, says HUL Chief
With economic growth predicted at 6-7% over fiscal 2023 and demand remaining robust, India could well avoid the worst of the global recession
India could side-step the worst of the recessionary trends that the rest of the world, especially Europe and North America are witnessing, feels Hindustan Unilever (HUL) managing director Sanjiv Mehta. He points to the robust growth of between six to seven percent predicted by the Reserve Bank and the government as reasons for this.
In fact, Mehta feels that such a growth rate was quite an achievement, given the headwinds India is facing from global macroeconomic cues. All credit should be given to the RBI and the central government for keeping things simple and steady in spite of the challenges that keep piling up, he says in an interaction with ET.
RBI and government did well
So long as the government and the central bank focuses on keeping inflation under check and ensuring that the economic activity stays steady, India can skirt the worst of the impact of the global recession, he says. He says at midpoint through a fiscal year, not too many economies could confidently predict a 7% growth rate, which is where India has stayed ahead.
Close to two-thirds of CEOs in India actually do anticipate a recession over the next 12 months, says a KPMG study but this number is still much lower than the 86% of global business leaders who think the worst is yet to come. Most industry leaders in the IT business predict lower billing from global customers, which is what makes them seek out new short-term customers.
HUL is witnessing low growth
From Hindustan Unilever’s point of view, the company posted 16% growth in sales for its two top brands of detergents and toilet soaps, though this was more due to higher prices as volume growth was restricted to about 4% during the second quarter. It is quite natural for FMCG companies to be the worst affected when banks hike interest rates to suck money from the system as part of inflation control measures.
This is what makes most FMCG companies resistant to recession where offtake remains by and large steady, given that their portfolio of offerings are mostly daily consumption products ranging from toiletries to food and everything in between. However, there’s no way these companies are recession-proof, which is why they serve as a quick barometer for economic activity.
The HUL CEO said the company’s net inflation stood at 22% as on date and that it would be tough to predict the direction it would take over the next couple of quarters. He felt the rupee’s weakness against the dollar also was taking a toll, as well the burgeoning oil prices fuelled by the Russia-Ukraine conflict. In fact, Mehta believes the government’s smart moves around oil imports in recent months helped curtail inflationary pressures considerably.
Readers would recall that consumer inflation (as against wholesale inflation) rose during April-May this year as companies jacked up product prices by as much as 15 to 20% or simply reduced the package sizes. These numbers rose once again in September, resulting in sales volumes declining by close to 10% in rural areas – usually a benchmark for nationwide offtake.
HUL is expecting demand to pick up following the festive season sales as well as an expected moderation in inflationary pressures. However, the foodgrain output for the Kharif season could be a deciding factor around which this trend would play out between now and March, the official said while reiterating that the headline growth was still holding on.
