Strong Rural Growth To Spur FMCG

Adi Godrej, Chairman, Godrej Group tells us that the worst is over for the Indian economy, and hopes to see strong growth in the second half of the year. He says that demand growth is key to further industrial investment, and what really counts is making investments where required.

What is your view on the present state of the Indian economy?

On the economic scenario, the worst is behind us. And I think the growth in the second half of the current financial year would be considerably better than in the first half. The first reason is that the reforms are likely to play a role, and secondly, the strong monsoon has lead to good agricultural growth.  That will have a multiplier effect on both industry and services.

Do you feel that the increased demand from rural areas would drive growth in GCPL’s numbers also? 

Well, I am not so sure whether the improved scenario would drive our results, as we have done quite well in the past. GCPL’s sales growth has been good in the first half of the year, with growth coming in by over 25-30 per cent. So, I am not sure whether the increased demand would have a positive effect on the results. But we have been growing well and the general economic growth would be better in the second half.

What are your expectations from the government on the reforms front?

There is an urgent need to enact on the reforms front. The most important reform that the government should enact as soon as possible is the Goods and Services Tax (GST), as that can directly add two percentage points to our GDP growth. Then, there are other reforms like opening up insurance to FDI. Any progressive reform will be helpful, including the allowance of FDI, opening up the economy and ensuring that government permissions are not delayed. A lot of the problems existed because the government’s decision-making has been very slow. Overcoming this problem would be augur well for economic growth.

Do you feel that the RBI has an important role to play here?

The RBI made a big mistake by allowing the INR to depreciate, and this has proved absolutely painful for many of the corporates. Action should have been taken when the rupee crossed the real value of 57-60 per USD. The tightening of liquidity by increasing the repo rate was another surprise.

However, the short-term rates (MSF) were revised slightly downwards. So, they should continuously work on bringing the interest rate down. But this impacts the growth rate. I think generally the RBI should become more growth-oriented than inflation-oriented.

Do you feel some more tightening will occur when the RBI meets again on October 29?

Hope they don’t, because any tightening would impact the economy. But at this juncture, I can’t say whether more tightening is on the cards or not.

Do you feel the political uncertainty would impact the markets?

Well, there is surely some political uncertainty as the General Elections are due soon. Once the uncertainty is over, the economy would have it better.

Any positive triggers for the FMCG sector going ahead? 

The biggest positive factor for the FMCG sector would be the strong rural growth. That would be the strongest positive trigger and will help other industries as well.

Do you feel that the India growth story is still intact?

Yes, in fact it is a very strong story and mainly rests on our very good demographic balance. We are a young country. This is unlike many other countries, when you turn left and you don’t get growth, you turn right and you don’t get growth. For example, like I mentioned, if we get in GST quickly, we would add two percentage points to our GDP growth. We have many solutions, and have many reforms awaiting us. So, I feel that Indian growth story is still very much intact. If we discuss this one year from today, everything will be much more confident.

Is the investment climate improving?

If you mean industrial investment, yes, it is extremely necessary. As a group, we are investing in eight different places. But it is important to invest where it is required. Many other groups are also doing so. Investing is not a matter of timing, it is about demand. If the demand is growing, investment will happen.