The worst of inflation is "perhaps behind" but there is a long way to go before the sales volume growth in rural markets becomes positive, FMCG major Hindustan Unilever Ltd's CEO and Managing Director Sanjiv Mehta said on Thursday.
The rural market, which has been reeling under the impact of high inflation, has seen some green shoots in terms of slowing of the decline of growth, he said while addressing the company's third quarter earnings virtual conference.
"When it comes to rural, the numbers have improved. There was a period of time in June-July that the value growth was negative in rural (market). Now that is no longer the case. In the September quarter, the rural growth (value) has been 2.5 per cent and the volume growth was minus 9 per cent," Mehta said.
Month on month, he said, "We are looking at the volume growth in rural, that the negative is declining... So clearly, we are looking at things which are improving but there is a long way to go before the volumes in rural become positive... But we are looking at green shoots. Instead of deteriorating, it has started improving, but albeit too early to declare victory." Under the present circumstances, he said, "inflation has been a big contributor" in the decline in the rural volume growth because the value growth is still there.
"So if inflation comes down we certainly believe the volume growth will come back (in the rural market)," Mehta said.
Sequentially, the net material inflation is down from 21-22 per cent to 18 per cent, he noted, but added that it is "not that the commodities which had increased rapidly, leaving aside palm oil, have come down to the pre-increase levels. It is only the rate of increase that has declined." Asked if there could be further price hikes, Mehta said the company would not only have to watch out for commodity prices but it also has to factor in the price-value equation and competitive pricing before taking a decision, which cannot be predicted with absolute certainty.
"But we believe that the worst of the inflation perhaps is behind us," he added.
When asked about expectations from the Budget, he said in order to accelerate growth, specially in the rural market, "we always maintain that you need more money in the hands of the poor people." Also, he said the most important bit is the stability of taxes.
Specific to the manufacturing sector, Mehta said "it may be worthwhile" that the tax rate of 15 per cent plus surcharge for the new manufacturing, which requires the companies to start manufacturing in March 2024, be extended by another five years.
"I think India has a fabulous opportunity to capitalise on the possibilities that global supply chains are looking at to shift, whether it is China plus one or Europe plus one. So it may be worthwhile whether this concessional rate of tax can be extended by another five years." He also said simplification and rationalisation of capital gains tax can be considered and the government may also look at providing benefits on R&D spending and innovation.
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