Tag: Shereen Bhan on CNBC-TV18

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Interview: Sanjiv Mehta, Chairman & MD, HUL in conversation with Shereen Bhan on CNBC-TV18

Sep 2, 2020 by Gouri Achary 0 Comments #Chairman & MD, #HUL, #Interview, #Sanjiv Mehta, #Shereen Bhan on CNBC-TV18

Q: Everybody is trying to understand what kind of change or shift the pandemic will bring about when it comes to consumer behaviour. I think there are 2 or 3 things that are absolutely clear and perhaps irreversible – one is digital transformation, every company that we speak with is very clear about the fact that digital is the way forward and we are going to see an extreme acceleration. The other trend that one is picking up on and you alluded to that as well, is the whole business of DIY, which has now become much more of a common tread across different consumer categories. Health and wellness and the spending capacity and the spending power on health and wellness is something that the pandemic has clearly thrown up as a trend. The quantum may vary depending on where we are with the infection spread, but this is also likely to be a big shift in consumer behaviour. What to your mind will be the structural shifts which are more permanent in nature?

A: First, I will share with you a few discernible trends that have come into play and I would pick a handful of them that are very important. First is what we call as COVID cocooning or the home cocooning. This is a mass behavioural change we have never seen before – Stay at Home Economy. That means, home cooking, home exercise and working from home. This I do not think will continue once we have a vaccine, the way it is today. I also firmly believe that let us not write the obituary of working from the office. However, very importantly there will be a hybrid model which will come into play.

Second, you rightly said, e-everything – online connecting, working, shopping, informing, educating, entertaining and this I believe is a massive opportunity for the country. If you recall during the Y2K crisis it gave a massive fillip to the Indian IT industry. Similarly, when you had the SARS virus in China, it gave a massive fillip to Alibaba and this is an opportunity for us to digitise the whole nation. This is an opportunity we shouldn’t let go of waste.

The other discernible trend is value seeking. In times of uncertainty, fear, anxiety, consumers do gravitate towards value-based volume shopping. We are very clearly seeing a trend where low unit priced packs are growing at a much faster pace.

The other trend is contactless culture, touch-free. Human touch instead of being cherished, it is being feared. So social distancing, self-isolation- this has again become a very clear trend. The other important bit which I believe is bound to stay and will not go away is clean living. Clean has become a kind of a cult during this period. There is a fetish for cleaning, cleansing, clean living. So there are products and services which are offering sanitizing, sterilising, disinfecting, anti-bacterial, anti-viral etc.

As a consumer goods company we used to spend crore of rupees every year trying to inculcate the habit of washing hands with soap, at least 5 times a day at the right moments. I think the world has conspired to bring about a change without our investment. I believe this is the right thing for the society because it would prevent you from even normal illnesses like flu etc and make you much more healthy. So, this is something that I don’t think will remain at an obsessive level but it is bound to continue.

Q: Many important trends that you have outlined for us from the COVID cocooning not being sustainable once we return back to a degree of normalcy, work from office resumes and so on and so forth. However, I want to pick-up on the clean living aspect that you spoke off. The boom and the explosion that we have seen for instance in the sanitizer market and even assuming that we start to see a tapering off as people get back to work and as the infection spread starts to trend lower, what will it mean for things like the sanitizer category, what is the market size that you believe we can expect going forward?

A: First it was a very small market in India, there were a few players like us who were selling sanitizers before COVID. Now it has gone up by 150x of what it was before. Let us be absolutely clear it is not going to remain at this obsessive level. Once things become more normal, it will come down to somewhere in the vicinity of 15-20 per cent of where it is today because some habits will change. Normally it takes about 60 days to inculcate a habit and we are much beyond 60-day phase now. So I wouldn’t be surprised if people carry a small bottle of sanitizer in their pocket or in their purse and whenever you sit in a Uber or in a public space, you touch a surface, then you would like to take it out but the obsession will go and this is also very visible – if we were to ask our China business the obsession with sanitizer has come down to much more normal now.

Q: The other category that has seen explosion is ready to cook, ready to eat, do you believe that, that category is also likely to see a significant tapering off because many players that we have spoken to have said what you just told me that we have tried for so long for people to wash their hands and this pandemic has done what we couldn’t do and ready to eat and ready to cook players say the same that what we have been trying to do for a decade, the pandemic has done it in just the last 4 months. How much of this do you believe is sustainable and is this going to be a big focus area for you?

A: One very important bit is that human beings are social animals. They like to interact with other human beings. So if we say that the habits of going out to a good restaurant and enjoying a meal or a drink with your friends or dear ones is going to go away, the answer is no. Look at Europe what has happened, look at what happened in China in the month of March after it became much better over there, there were long queues outside KFC. So I do not think again that it will continue at this level but very important people have inculcated new habits, they have developed new tastes and they have very importantly also got themselves new skills. So you would still like to experiment with food at home which you weren’t doing earlier but which you have now started doing in a very big way. However there will be moderation, I am absolutely certain about that and life will go back to what it used to be earlier albeit within a nuanced way.

Q: You are now seeing this big shift towards health and wellness and you believe that a lot of this is going to be structural and not completely irreversible, what will it mean as far as HULs plans for this segment is concerned? How much of revenue growth is going to come in from this specific category? Are you looking at more M&A options here, what are the themes that you are going to play within the health and wellness space?

A: I believe that this is a marriage made in heaven. It is one of the best brands in this space of nutrition and we had an eye on it for many years. When the opportunity came up and we got it, we were absolutely delighted with it. We have to understand why I say that it is a marriage made in heaven because it is a unique opportunity for India’s largest FMCG company to join the journey of helping the country in its nutrition battle. Here we have great brands, a business at scale Rs 4500-5000 crore and then you have the huge power of HUL which is so adept at building categories and distributing it at making it accessible that it is aligned with a larger goal of nourishing a billion lives.

Q: Speaking about nourishing a billion lives, what is this going to mean in terms of portfolio innovation when it comes to fortification, new launches, how are you looking at a whole segment of immunity boosters?

A: Our initial plan is to integrate this business. This business is the largest merger in the consumer FMCG space in the country. We are talking about 3000 employees who are working for GSK and who have come into our fold. We consummated the merger during the lockdown, so right now our entire focus is on making this great talent who has come from GSK settle down well, make them very comfortable, align our systems and processes and very importantly get the synergy that we had built into our business case both from a topline perspective and from a bottom-line perspective. While at the same time our teams have been working on plans on what the innovation should be in the foreseeable future and one of the best things that they did is to launch a variant with added zinc because it boosts the immunity and true to character the first thing we did is we distributed 1,50,000 packs with added zinc to the healthcare workers in the country. So I am very optimistic, we will draw up our plans, we have great scientists on both sides looking at it as to how do we make the best use of this absolutely stunning brands which are into an ideal space as far as the company is concerned and the country is concerned.

Q: You talked about the process of integration, so would I be right in assuming that at this point in time there is enough on your plate and you won’t be looking out for any interesting opportunities that might come your way in this business?

A: Just after the GSK acquisition, we acquired V-Wash and this we acquired from Glenmark. This is an intimate hygiene and again a very important category. It is a niche category today that we believe is absolutely right for us to grow this category. So we will always be in the lookout for the nice opportunities that come our way not only in foods and refreshments but also in beauty and personal care and home care, we are always in the lookout. If you look at it in the last few years, we have done some very good acquisitions.

Business World

Sanjeev Sanyal, Principal Economic Advisor to the government of India in conversation with Shereen Bhan on CNBC-TV18

Aug 14, 2020 by Gouri Achary 0 Comments #Principal Economic Advisor to the government of India, #Sanjeev Sanyal, #Shereen Bhan on CNBC-TV18

Q: This was a commitment made by the finance minister in the budget which is now been taken forward by the Prime Minister with the unveiling of the transparent tax portal today. While I understand that the emphasis is on reducing litigation, on improving compliance, on bringing down complexity further and of course moving to a system of faceless assessment and appeals, what is it going to result in? Where will this take our tax to GDP ratio for instance, what is the expectation on what this could do for tax collections?

A: The first thing to understand about this is that we are changing the underlying architecture and philosophy of the tax system. So it is not just about taking a short term sort of a measure, this is really reconfiguring the philosophy of the taxation. So as the Prime Minister himself said, many of our policies, particularly tax policies, are derived from a colonial-era where there is an inbuilt distrust of the citizen and then of course overlaid by a socialist era distrust of profit-making so to speak. So what we are really doing is changing the underlying philosophy of the tax system. The idea here is that not only is it automated, but it is faceless because there were as you know many discussion about systems being slow, occasional harassment and even rent-seeking sometimes. So the idea is that now that you have a system that is sort of randomised and faceless, then consequently radically reducing opportunities or such problems to arise. You have to remember that this is being done at the same time that a taxpayer’s charter is also being put in place. So you have to see it in entirety. 14 commitments have been given by the Income Tax Department and you have also separately seen a bunch of notifications that should be already out on Twitter about what are the conditions. So in that sense, this is not just a small organic incremental change, this is a fundamental rewiring of the philosophy of how the taxation system works.

Q: Since you talk about this being a rewiring of the tax system so to speak, I want to go back again to ask you what it is finally going to mean when it comes to execution. Now the feedback for instance from many tax experts who watched what the Prime Minister and the tax department has had to say today is that look at least the CBDT as an immediate relief should instruct the release of all pending refunds otherwise companies are forced to move courts. So could that not have been, or is that likely to be a follow-through action on the promises made today?

A: We need to separate the two out a little bit. One is what we are doing now is working on the underlying architecture and then there is the other issue of policy which of course – I mean there is no doubt that refunds etc. should be sped up and finance minister has spoken about that repeatedly. We, in fact, have been speeding it up even before this, but that was not really the focus of what we were trying to do today which is trying to rewire the architecture. But since you brought it up, it is an important issue and the government is aware of it and finance minister in her own speech did mention that refunds and other things are being sped up and some of it has already been released from what I gather.

Q: What will it mean in terms of collections, what will it mean in terms of tax growth? The Prime Minister gave us a number of 1.5 crore taxpayers out of a 130 crore, but the numbers that we have, total I-T returns filed for the year 2018-19, 6.74 crores, number of persons filing returns for 2018-19 stands at 6.33 crore — now not to get into the argument about whether it is 1.5 or 6.33, the number is low. The question though is what is the roadmap on moving this significantly higher, what is the target?

A: The idea here is to make tax paying a part of the sort of the general culture. Now it works both ways, and which is why we see the taxpayers’ charter, it has both commitments from the tax department, but it also has certain duties expected from the taxpayers. So it works both ways and of course, it is a virtuous cycle. So as more people come on to the tax system and a culture of trust gets built, then what happens is, it allows us then to simplify it, lower the tax rates. Ultimately what is our aim, our aim is that a large number of people pay relatively little amounts of tax with as little friction in the transaction as possible – that is the ultimate aim. Also once the system of trust comes up, then what happens here is that we can also simplify. I think the Prime Minister also mentioned what is one of the problems is this – that we are spending enormous amounts of energy complicating the system in order to catch a small number of non-compliant people. But in fact what is happening, as a result, is large numbers of otherwise compliant people are getting inconvenience by this. So it is a vicious cycle because you end up making the system even more complex and consequently the compliant are further inconvenienced and so on and so forth. Of course, a complex system can be gamed even more easy by those who want to be non-compliant. So what we really want is a simple system, a system of trust and lower tax rates — that is basically what we want to move towards. The architecture for that is being put in place, some of the steps for that, the faceless assessment and all of that is one part of it, the taxpayers’ charter is another part of it and of course many other things that are also being done. I mean you have already seen on the corporate tax rates, we have lowered them very significantly. So these are all one-by-one, you can see systematically heading in a particular direction.

Q: You talked about lowering tax rates and that being the eventual goal, but do you believe that there is room to do much more on that front whether it is corporate taxation or income tax because we have not seen the widening of the tax base and given the situation that the government finds itself in with collections at this point in time, will this goal have to be pushed out further?

A: Not really, because what we are trying to do is, the administration part of it, bits of that has to be put in place one by one irrespective because the gain from that happens in the long run anyway. So, you got to start right now. So, for example, when you are talking about the taxpayers’ charter, this doesn’t impinge in any way with the current taxation revenues that you are collecting irrespective of whether we are going up or down in the economic cycle. This has to be put in place. The same thing is with the architecture we have put in place in terms of faceless assessments and the IT infrastructure for it; that needs to be done irrespective. So, I don’t think we should begin to get diverted into the short term requirements of revenue collection which are important of course, but these longer-term architectural issues are something that we cannot delay indefinitely. So, we have to begin putting them in place. It takes time for the benefits of this to come – for example, with the taxpayers’ charter, we will need to create mechanisms for making sure that these are enforced and in fact, item number 11 of the taxpayers’ charter still says that provide a mechanism to lodge a complaint. So those mechanisms have to be created and so it takes time, step by step and of course, in many cases, we will have to get feedback. Sometimes things will not work, we will have to rejig it a little and so on. So, all of this takes time. We cannot let our current revenue collection difficulties because of cyclical reasons be thrown off by what is clearly a fundamental change in the architecture.

Q: Let me ask you about what you make of the current revenue situation in the context of where the economy is. The finance ministry in its latest snapshot on the economy has spoken about how the re-imposition of these many lockdowns is in fact hurting the fragile recovery that we are currently seeing. What is your own sense now about where things currently stand? The finance ministry was looking at high-frequency data, we have seen a tapering off in July versus the month of June, what is the data tell you currently about the state of play?

A: When you do something like a lockdown, maybe there are good health reasons for doing it, but you cannot look away from the fact that it has an economic cost that comes with it. When you had a full lockdown as you had in the starting of March and end of April, there are many sectors that are literally brought to a halt. Now as we have gone through time, we have opened these things up step by step. First, lockdown 1, 2, 3 and so on and then now through the unlocking process. In many cases those sectors there was some element of pent up demand which is getting released for example in the purchase of cars for example there is recovery. But there are sectors for example tourism that will take time to come back. So, all of this takes a bit of time and of course, there will be several occasions where the health requirements of that time, say for example there is an outbreak somewhere, so then we have to make those tradeoffs; that is why it is a difficult thing to do. But where we have to look after human lives, we have to make a tradeoff and step back in the economic trajectory, now, does that have a revenue implication? Yes, it does have, but that is what we as a society need to accept at some level that there will be such hits. But the good news is I think we are getting better and better in dealing with the health part of things. There are many vaccines in the pipeline from what I gather, I am not an expert of this, and so I think I am quite confident that as we come out of the stage where we were mostly focused on, the health part of it, and cushioning the economic impact and we will then transition to a rebuilding phase where we can press back – we have taken our foot off the brake and we can begin to press accelerate.

Q: You spoke about rebuilding, but let me ask you about what the assessment now is in terms of the state of the economy because the Reserve Bank of India (RBI) has reiterated that this year is likely to see a contraction for FY21. Closer to 5 per cent, less, more, what is the internal estimate?

A: We are in an evolving situation. So putting a hard number is difficult unless you can tell me when exactly this whole thing will end not just in India, worldwide because the global situation also impacts us. So, it is very difficult to put a hard number, but the finance ministry’s view, by and large, coincides with that of RBI. So, there is a significant impact on the economy, there is no doubt about it.