‘Govt must take risks to revive economy now before it is too late’: HUL chief

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The government must take measures to boost demand, usher in an aggressive interest rate regime, provide support to informal economy, extend moratorium to micro, small and medium enterprises (MSMEs), and revive distressed sectors such as real estate and hospitality to bring growth back on track, Hindustan Unilever Ltd (HUL) chairman and managing director Sanjiv Mehta said on Monday.

In a conversation with Federation of Indian Chambers of Commerce and Industry (FICCI) president Sangita Reddy, Mehta said the government needs to take “special measures” to revive growth as “60% of our economy depends on private consumption” and “demand is the basis of the economy moving into a virtuous cycle”.

“Demand will lead to more investments, investments will lead to more employment, the confidence will go up, people will start spending more and the economy will again, hopefully go back to the kind of rhythm we have seen in the past… Aggressiveness has to come in, bold measures have to come in and the government is willing to take the risk,” he said. Mehta is also vice president of FICCI.

Mehta said that the government must take risks and ask the Reserve Bank of India (RBI) to substantially reduce the interest rate to boost growth, which should be its top priority over inflation in the current situation.

Mehta said the 24% contraction of India’s gross domestic product (GDP) in first quarter of current financial year is worrisome. Comparing India’s GDP in the time of Covid-19 with some worst-affected nations, he said that India’s stimulus package of Rs 20 lakh crore lacked the aggressiveness of other countries.

“Today, I would believe that in FY-21 we could perhaps contract anywhere from a floor of -6% and could go up to mid-teens. So that’s the kind of risk we have,” he said. In the last two decades, over 20% of the population has been able to move from the bottom of the pyramid to the lower middle class, so one of the biggest risks we see is that many of these people will again be pushed back to the bottom of the pyramid, he added.

He said there is no alternative with the government but to kick-start the economy because if growth if not revived, the condition of marginal people and the informal sector would take a turn for the worse.

Mehta said although the Rs 20 lakh crore stimuli given in March was necessary to save lives and livelihood, it was not adequate to revive the economy with 1.3 billion people. Therefore, the government must now take decisive measures in terms of a major stimulus to boost demand.

“While, we get it that the government has been circumspect of spending, and to an extent they have kept the powder dry… and also, when we were in a period of hard lockdown, going in for any kind of massive stimulation of demand might not have given the desired results, because people could have ended up saving the money rather than spending the money. But, I think, this is the time where the government need to press the button… press the accelerator,” he said.

“Also, we need to be much more aggressive with the interest rates of the country. Growth and inflation control must move in tandem. There is a risk of inflation, but the bigger risk is the economy going on a tailspin,” he added.

He said this is not the time for the government to worry about fiscal deficit. “Very importantly, the government must create the headroom to spend money. And the headroom will come from taking a very clear decision on the fiscal deficit. There is a curve of cost of doing and the cost of not doing. When the cost of not doing exceeds the cost of doing, then it would be a very unfortunate situation for the country,” he said.

“We should not let that happen; we should take the risk of being aggressive with the spending. Because if we don’t do it now, then it might become a bit too late,” he added.

Mehta said the Covid-19 pandemic is a crisis of huge magnitude, which is not just about an economic crisis. “It is a health and a societal crisis too and it will have far-reaching implications for the world at large,” he said.

“This could impact the global trade significantly. We are today talking about global trade, which at about $ 18 trillion, could possibly decline by 20%. The other big impact that we’ll have is the exacerbating, deteriorating US-China trade relations, where the two-way trade valued at $650 billion, could possibly shift by about $100 billion. This big opportunity is waiting for a country like India to tap in,” he said.

“Geo-political frictions also play a significant role. Unfortunately, even before the pandemic, the global multilateral organisations had weakened. This could also lead to a retreat of globalisation and I believe, it is not in India’s interest to let that happen,” he added.

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