Small Businesses Worst Hit By GST, Demonetisation, Says Marico’s Mariwala
The impact of GST and demonetisation was more severe than expected, says Harsh Mariwala
Small and medium businesses were the worst hit by demonetisation and the Goods and Services Tax rollout, said Harsh Mariwala, chairman of consumer goods company Marico Ltd.
For the rural segment, in particular, it is tough to assess whether the slowdown is demand related or due to GST, Mariwala told BloombergQuint. He is, however, hopeful of a recovery in the next quarter, especially for larger companies.
For Marico, things are already back to normal, except the wholesale channel and rural market, he said, adding that the company will return to its growth trajectory this quarter.
Here are the edited excerpts from the conversation.
How do you characterise the current state of the economy?
I look at the economy from two angles, one is the Marico angle, the impact of demonetisation and Goods and Services Tax implementation on our own business. The other is what I hear from people in the industry. Both these initiatives have had a far more severe impact than what we had imagined. We are still coming out of the GST implementation-led shocks.
As far as Marico is concerned, the negative impact is more in the wholesale business in rural areas. But when I talk to the smaller and medium-sized industry owners, I realise that the impact is much more on them.
It’s really worrying at one level because we thought that we had enough time to implement GST and a lot of work had gone in to identify what could be the glitches. But it looks like that there has been a setback to the economy because of GST implementation. Hopefully, this could be a short-lived one as the government is actively trying to address the issues.
Recovery This Quarter?
What has been the extent of the GST hit on sales and or financial numbers?
In case of larger companies, the impact is much lesser. The impact was more in the month of June prior to the GST launch. It’s much lesser in this quarter. Except for the two sectors of wholesale and rural, things are back to normal. We will return to our growth trajectory in this quarter. The impact is much more for smaller and medium-scale industries and there is a greater cause for concern in those areas.
How do we measure the depth of the problem in wholesale and rural industries, in the informal segments of the economy?
I think, we should wait and watch and see if this impact is transitory or long term and I guess, to some extent, it will be a combination of both. From what I have heard, the sales are down in this quarter by almost 30-50 percent. In our case, it’s higher than last quarter, so we’re fine. It’s difficult for me to say whether the impact is transitory or permanent in nature since I’m not part of that industry. But the impact is definitely worse there.
Demand Slowdown Vs GST Disruption
Can you give us an idea of what’s happening in the rural market in particular?
It’s very difficult to predict because the discontinuity is not giving a true and fair picture of what’s happening. To some extent, rural demand is being impacted by the GST transition. However, I am unable to identify whether it’s a demand issue or a GST issue and within GST, whether it is transition issue or is it the permanent impact of GST? But I am quite hopeful that the things will look better in the next quarter, especially for larger companies.
Is there any disruption in the supply chain?
Because of the transitory nature, there is an impact in the wholesale segment. Because of wholesale services and the smaller mom-and-pop stores, there will be some impact in terms of supply chain but not in terms of other sectors like large-scale or big retailers. They will be doing much better because they will earn at the cost of some smaller players.
How has the high copra price inflation affected your input costs?
Copra is the main raw material for our Parachute coconut oil which is our biggest selling product. To that extent, higher prices will impact us. But luckily, we had some stock which is built up. But in spite of that, I think there will be an impact because raw material prices have really shot up over the last few months.
How would you describe what the next few months could look like, in terms of profitability and margins?
I am quite hopeful that the team will do a good job in terms of driving topline growth and also ensuring that the bottomline is at least not very highly impacted by inflation.
You mentioned stress on wholesale sales and rural economy. On the other hand, large firms like yours are benefitting from the formalisation move. Are these two getting balanced out? If yes, do see any need for government intervention?
If you see the GDP trajectory and its trend in the last 1.5 years, it’s going down every quarter, which is not a good thing. Partly it may be because of demonetisation, partly it may be because of GST. So, one has to see whether it is a temporary blip or if it is more fundamental or structural in nature. And if it is structural, then it is a cause for worry. Then there is need to bring in some stimulus package. We are also coming closer to the next election. So, that is also one factor which is playing in the minds of the governing party.
I think we have to wait and watch. But an investment-led stimulus package will take its own time in terms of growth and impact on GDP. But a consumption-led stimulus package would be a little bit more short term in nature and it will have a better impact in the short term compared to an investment-led stimulus package.
We have paid the price in the past for this consumption-related stimulus package, unless it’s very well timed in terms of introduction and withdrawal.Surely, the industry does not want that problem to resurface either.
Yes, you are right. But maybe if the government is able to target properly, with all the technology, Jan Dhan and the Aadhaar, if there is better targeting in rural areas, among the poor, I think that may help. You need to give a package which is very well targeted and also ensure that it doesn’t lead to increase in fiscal deficit as well as inflation.