Rural growth not in top gear but robust, says FICCI president Sanjiv Mehta

Sanjiv Mehta, President, Federation of Indian Chambers of Commerce & Industry (FICCI) on Tuesday said rural growth has slowed down, however is still very robust. He added that the growth of this segment of the economy had slowed down even before the COVID-19 pandemic hit the country.

“Even before the pandemic, rural growth had slowed down. But during the last several quarters, last two years in fact of the pandemic, rural has remained very resilient. We are seeing the headline numbers slow down a bit. But if you look at the two-year period, it is still pretty robust,” he told CNBC-TV18.

Mehta, who is also the chairman and managing director of Hindustan Unilever Limited, pointed to “unprecedented” inflation and stressed the need for the rapid growth of the rural economy in the years to come.

He said rural comes from a very low base, the per capita consumption in FMCG for instance in rural India is less than half of that of the national average. “So, rural should be humming and growing at a clip pace for many years to come. When rural slows down, it does become an area of concern. So there are a few factors I would like to bring in. First is inflation, we have seen unprecedented inflation. This is a kind of inflation we have not seen in several years,” he explained.

The FICCI president noted that inflation will hurt volumes though growth may remain the same due to price increase. He added that inflation is driven not by demand, but supply-side issues and speculation. Going by the recent sequential price increases, the cost over the next five to six months will determine price increases, he said.

Commenting on the impact of price increases, Mehta said, not every brand can carry the price increase, only strong ones can. “There was a period of significant capacity enhancement in anticipation of demand. That demand did not materialise and led to twin balance sheet troubles,” he said.

Now, banks have been provisioning for non-performing assets (NPAs), companies have also deleveraged significantly and the twin balance sheet problem is no longer in the lexicon.

Meanwhile, Mehta also highlighted significant investment in the entire value chain. According to him, if capacity utilisation crosses 70 to 80 percent, there will be capacity expansion.

He also called for better innovation for the country to be able to cater to global needs. “If India has to compete at a global stage, we will have to compete on innovation, cost quality and service. India needs to raise its game on R&D and innovation. We need to identify the areas where we can be best in class,” he said.