Needle should shift from welfare to reform, says Harsh Mariwala

Harsh Mariwala, chairman of fast-moving consumer goods company Marico Ltd, says with the Narendra Modi-led National Democratic Alliance returning to power with a thumping majority, the stage should be set for both an immediate booster dose to kick-start the economy, as well as deeper and bolder reforms for the future.

Mariwala’s company, which owns the popular Parachute oil brand, clocked an 18% growth in net profit in the fourth quarter of FY19, with a volume growth of 8% which was more than the Street expected. However, in general the FMCG sector has been facing the effects of a shrinkage of consumption in the economy with FMCG giant Hindustan Unilever also witnessing a volume growth of 7% on lower rural demand. Analysts have been warning of an imminent slowdown in the economy as industrial growth, farm distress and a lack of fresh private investment take their toll on the Indian economy.

“The immediate step now should be to kick-start the economy with a booster dose. It’s like giving an immediate injection to a patient to make her feel better. The deeper reforms should come thereafter to push the economy to a higher growth trajectory of 8-10%, but an immediate booster shot is necessary,” Mariwala told Fortune India. “The needle should shift from welfare to reform.”

He said deeper reforms would give the government the resources to carry out the welfare schemes. With the massive numbers Modi’s ruling BJP has got, the government should not have to worry about the numbers to support bolder reforms which are now the need of the hour.

He said the government would now need to show the courage of conviction and push through labour reform which would give flexibility to cyclical and export-based sectors the flexibility to plan their manpower requirements better. “Organised labour can’t go on getting protection,” he said. On employment generation, he said the booster dose or immediate stimulus could be oriented towards employment-creating sectors like housing and other sectors which were large employers, while longer term measures could focus on stimulus for sectors like tourism, hotels etc which were also generators of jobs.

Pointing out that consumer demand was “still subdued”, Mariwala said the government would need to tackle farm sector distress urgently and could look at the use of genetically modified (GM) seeds which were in use elsewhere in the world but which were being prevented by lobbies from being used in India. Calling for a “betting tax” and the legalising of betting in areas beyond horse racing, Mariwala said that could also be a source of revenue for the government. “Major betting goes on outside of horse racing in other areas which could be legalised and a betting tax imposed to garner revenues,” he said.

“A lot of farm income is also used to evade taxes,” he added, calling for taxing farm incomes of over ₹20 lakh or ₹30 lakh. “The time has come for bolder reforms,” he said. Hoping that steps to address the challenges in the economy would be taken over the next 100 days as Prime Minister Narendra Modi calls for 100-day plans from his ministries, Mariwala said the usual reforms like reducing the number of slabs under the goods and services tax (GST), pushing infrastructure, privatisation and the simplification of the direct tax dispensation would also need to be carried out over the next few months. “There’s also the liquidity issue surrounding non-banking finance companies,” he pointed out.

Mariwala is not alone in expecting bolder reforms from Modi 2.0. Broking firm Prabhudas Lilladher, in a strategy note a day after the results, pointed out that “elections don't provide magic wand to lingering problems.” It said the Indian economy is at the cross roads with probability of a below-normal monsoon and farmer distress compounded by low agricultural prices. The NBFC crisis and pressure on real estate is increasing and impacting creating pressure on multiple levels, it said. “Consumption demand has been hit due to poor rural demand. Automobile industry has seen multiple-year low demand due to poor sentiments, increase in insurance costs and... high financing costs. Airlines have been hit by Jet Airways collapse and power sector remains paralysed due to unviable generating assets and losses of SEBs,” the brokerage firm said, pointing out the problem areas.

“We believe Modi 2.0 has given the ruling dispensation more firepower to take hard decisions and push for reforms. We expect sustained thrust on social schemes aimed at removing disparity and look for more inclusive growth,” the note added.

According to the broking firm, the last NDA government has been seen to be lax in tackling tricky issues like power sector reforms, banking reforms and consolidation and NPA issues.

“Some sectors like airlines, power, NCLT cases and Infrastructure assets need to undergo resolutions. Agriculture is likely to see sustained investments and a serious attempt to increase rural livelihood,” the note said.