Extend tax sops for new manufacturing units: HUL CEO Sanjiv Mehta – Times of India

Industry body Ficci and consulting firm McKinsey have presented a joint report to the government on the way forward for India and the priorities. Hindustan Unilever (HUL) CEO and MD Sanjiv Mehta, who is the president of the industry chamber, spoke to TOI about the plan to set up incubation centres in three states to boost innovation in renewable energy, electric vehicles and water. He also discussed the issues that need to be tackled in the Budget, underlining the need to continue with the focus on capital expenditure, while also keeping an eye on the fiscal deficit. Excerpts:
So, tell us about the key recommendations in the report…
India is at a real inflection point right now and during the next 25 years, when India reaches 100, we should all look back and say that India has certainly moved away from a developing and emerging market to a middle-income country and poverty is behind us. This is also a country which has grown by decoupling its environment footprints. The whole idea was to look at the building blocks.
The premise based on which the work has happened is that India will be home to one-fifth of the work population and the digital footprint with 650 million on the net and this is increasing at a rapid pace with infrastructure being laid out in the country, this could give a massive fillip to the economy.
India’s time has come, we are at a stage where the world is conspiring for India to win.
One of the big challenges is jobs and you have talked about achieving 650 million jobs. Can you give us a sense of how much of it will come in manufacturing and, as industry, is it getting more challenging to create jobs given that more technology and capital are coming?
Of course, it will be very challenging. We have a little over 400 million jobs, of which a large number are in the agri sector. As technology comes into play, most of the jobs will have to be created in sectors other than agriculture. We need to look at India as a heterogenous entity – there are states where the percentage of jobs in agri sector is 10% or less and there are states where jobs in the agri sector are 30% or more. So, it will have to be horses for courses. More developed states will have to go up the value chain, those that are relatively under-developed will have to see that more jobs get created first.
Manufacturing will play a very big part. Today, we have competitiveness in certain sector, but there are more sectors like electronics, chemicals, medical devices, where we could really go up the value chain, we could adopt software and digital-enabled manufacturing in a very big way. India as a country has to become the green manufacturing capital of the world.
How do you balance the need to create more jobs with the interest of shareholders which may not require more jobs?
When you go down the technology, digitisation path, for the same production line the number of jobs will come down. If you move up industry 4.0 for manufacturing, your productivity will go up significantly. So the job for the same quantum of throughput may be less by 30-40%. But this has always been the question whenever industrial revolution has happened. The new jobs that would be created would not be in same line but would be when more industrial lines get created.
If you keep investing in new factories, you keep bringing in new production lines, new products, you will be employing more people.
The report discusses innovation. But is the mindset in the industry changing because all these years, there has been a massive emphasis on jugaad?
Jugaad has been an albatross around our neck and I don’t believe in jugaad because it has led to less for less and we have gone away from a concept of more for less and basic innovations aren’t really happening in the country. We have now reached a stage where companies realise if you have to go up the value chain, innovation will have to be pivotal.
How would you want the government to start the exercise starting with this Budget?
There is huge turbulence in the global economy and growth will be muted. India is clearly one of the outliers, we are expecting growth to be in the vicinity of 7%. For India the imperative will be to contain inflation and keep growing. This year, if we can grow in the vicinity of 7% and keep inflation in the vicinity of 7%, so the magical number is 7%, it would be a very good achievement. We need to then build on it.
If India keeps growing at 7.7% for next 25 years, our per capita income will rise sixfold to over Rs 1 million (10 lakh). The focus on growth, whether by the government or the private sector, should not go away. All the good work on capital expenditure, ease of doing business, reforms in the space – that should continue unabated. Growth will lead to more capital investment.
For how long should the government increase the tax benefit for new manufacturing units?
It should be extended for another five years because investors always look at policy certainty. This is a very pivotal moment for India when many foreign investors are looking at alternatives to China.
Given that there is revenue buoyancy, is it time to rework the personal income tax regime to leave more money for individuals to spend?
The revenue buoyancy is due to the formalisation of the economy and the government’s quest to plug the loopholes. This should continue as it will give the government more resources to spend on health, education and infrastructure. We also have to remember that our fiscal deficit needs to be controlled. So, you need to look if the government has the capacity to bring down personal income tax. The challenge before an economist is to assess if it will result in more savings or more investment.
Given that inflation has moderated, do you see a positive impact on your business?
If fuel prices remain at $70 (a barrel) or less, it will have a rippling effect. Palm has cooled a bit. The big trigger point will be if the Ukraine war was settled, commodity prices would come down.
At HUL, we still have headline growth but the volume growth is negative, this is primarily because of the 11-12% price growth that has happened. If commodity prices go down, companies will correct the price-value equation and volume growth will return.