Risk of recession remains real, but not a foregone conclusion: HUL Chairman

The Covid-19 pandemic is a wake-up call for nations and businesses to step back and re-evaluate their current models, said Sanjiv Mehta, Chairman and Managing Director, Hindustan Unilever Ltd (HUL), on Tuesday.

He was addressing shareholders at the company’s 87th Annual General Meeting that was held virtually. The economic fallout of the Covid-19 crisis is inevitable, he said. The immediate impact of the national lockdown was severe supply chain constraints, he explained. “From a demand perspective, the fear of loss of jobs, dwindling earnings and eroding investments have made people circumspect with their spends.”

Whether economies can avoid the recession or not, the path back to growth will depend on a range of drivers, such as the trajectory of virus, the effectiveness of containment efforts, the economic steps taken by governments, the reaction and behaviour of firms and consumers, the degree to which demand will be delayed or lost, whether the shock is truly a spike or lasts, and whether there is a structural damage to the economy, he said.

The risk of recession remains real, but we must not take it as a foregone conclusion, Mehta added.

Sufficient enough?

Talking about the steps taken by the government, such as increased allocation under MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) Scheme, direct transfer of cash, increasing the Minimum Support Price (MSP) at which the government acquires foodgrains from farmers and providing partial credit guarantees for NBFCs (non-banking financial companies), he said: “The above steps were necessary and they will have a trickle-down effect on demand, but the debate remains whether these are sufficient to kick-start a virtuous spiral of growth or would it require a substantive demand-side stimulus.

“...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.”

Going digital

Mehta also talked about the digital efforts which have helped HUL during the lockdown. “In some areas, our salesman could not physically reach the stores. An app-based ordering capability was quickly rolled out to these stores to restore our ability to capture orders and meet consumer demands. Similarly, extensive data about the stores and market helped us redesign the service model and create new optimised routes for delivery. The power of automated warehouse kicked in and enabled us to deliver to stores even in situations where the distributor was not operational.”

The experience of recent months has indicated that enterprises that had adopted digital technologies in the core of their business have been less impacted than others, he said. Many SMEs in India are at a low level of digitisation and there is growing awareness of the handicap it creates, Mehta added.