Nov 30, 2016 10:10 PM IST | Source: CNBC-TV18

Combined effect of GST, cash ban worrisome in short-term: Marico

"The government is trying to do many things within a short period of time," says Harsh Mariwala, Chairman of Marico. Several traders are still not prepared for GST, he adds.

The combined effect of demonetisation followed by Goods and Services Tax will have a short-term effect on business for around 6-9 months, says Harsh Mariwala, Chairman of Marico.

The cash ban has mostly affected the business of Marico in rural and wholesale markets, says Mariwala. Sales via chemists have seen better growth due to the acceptance of old notes.

"The government is trying to do many things within a short period of time," Mariwala says. Several traders are still not prepared for GST.

He believes it is logical for FMCGs to cut advertising spends in November and December.

Below is the transcript of Harsh Mariwala’s interview to Sonia Shenoy, Latha Venkatesh and Anuj Singhal on CNBC-TV18.

Sonia: Some of your peers like Dabur that we spoke to recently have indicated that they have cut their marketing spends and ad spends by almost 50 percent because of the impact on demand. Would you be doing the same in the month of November and December?

A: I do not know. I do not handle day to day affairs of the company, so difficult for me to answer. But logically, I think they would have cut some expenses because if the sales are suffering and if there are lack of supplies in the market place, then no point advertising. And even if the consumer does not have cash to buy, then that may have an impact on demand. So it is logical for all the fast-moving consumer goods (FMCG) companies to cut ad spends at least in the short-term in the month of November and December.

Anuj: The larger question then. When you spoke to Dabur, they said that of course, it is more a case of transition in the economy. Your sales would be in white, but at the end of the day, cash does play a part in FMCG sales, in the back channels. What has been the impact and are things improving. What is the ground feedback?

A: I will talk about the FMCG sector. You have to divide that into different channels. If you look at the modern trade, no impact, if you look at the chemist, no impact. on the contrary, a little bit higher sales because the chemist is allowed to accept the old notes. So, that has no impact. I would say the biggest impact would be in rural and in wholesale. These are the two major areas where the impact has been the maximum, rural and wholesale and then in the kirana stores also because of lack of notes. So, I would say these are the three sectors within three segments within FMCG sector, three channels if I call it which have been impacted.

Latha: What is your sense about any deeper worries about rural aggregate demand? Any sense at all whether the informal economy is dislocated because more construction may not happen, because of lack of sales, people are letting off help, domestic help go away. Is there any such fear of a slightly longer-term impact?

A: I do not think so, but there is one other fear that because of lack of cash, sowing is not taking place. But that is misplaced. From whatever I have found out, it has not had any impact on sowing. So in terms of crops there is no impact or not likely to be or hardly any impact. But again, when it comes to selling, we buy some Copra and raw materials. Again there is some degree because of – buying raw materials there is some impact on the farmer or selling of his produce. But all that would be temporary. So, I for one, do not think there is going to be long-term impact.

My worry is if by the time this settles down and it will take a few months, it cannot happen by December, it may take a little longer than that. And on top of that, if goods and services tax (GST) comes in April, again there will be big steps and a big discontinuity and there again will be some learning curve, there will be some disruption because some people are not ready with GST. So, combined effect with these two is a little bit worrying. And these are short-term issues, I am not talking long-term. If you combine GST with demonetisation and all that happening at the same time, so by the time demonetisation settles down, GST short-term disruption comes in and that again has an impact on growth rates.

Latha: We had a fairly detailed discussion yesterday with a former agriculture secretary and a farmer, head of the Bharatiya Kisan Sangh. Their point is, as you said, sowing is as good as it was last year, same time November. But they are worried about input because of the cash crunch and cooperatives not being able to exchange cash. They were seriously worried that if inputs do not reach in two weeks time, then they were worried about the quality and quantity of the rabi harvest. But that is neither here nor there. What you spoke about GST and the demonetisation is a temporary disruption of your functioning. It should not logically impact demand, once the cash crunch goes, right?

A: Yes, it is a temporary impact. It may not last for more than a year or so, long-term hopefully with both these getting implemented. The economy will be in a better shape. But I am talking of in the next 6-9 months.

Latha: But why would GST impact demand? You may have a confusion with your accounts.

A: Because within a short period of time, the government is trying to do a lot of things and a lot of trade, small players are not ready with the GST way of doing things. So, if the trade is not ready, then I reckon that will have some disruption. And I think it is quite complex, the whole GST transition from current going to the GST transition, the industry also requires time. The bigger players may be ready, but the smaller players and the trade will go through a learning curve, because you need that IT support, you need to proactively handle the shift from what currently is happening to the new one.
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