HLL on a visioneering mission

By S. Swaminathan

Corporate annual reports and the chairmen's statements to the shareholders at annual general meetings usually focus on the bottomline and the constraints and challenges confronting the managements. And understandably so. After all, the shareholders expect the company's top brass to tell them why the profit performance could not have been better than it is. If there is anything more which is in the minds of the average shareholders, it is a word of reassurance about the prospects of the company in the current year. That the future performance of the company would be bound up with the economic environment in its totality is a truism. All the same, in the typical chairman's speech at a company's AGM, there is only a smattering of macro-economic references.

Among the companies in India that are exceptions to this generality and which look at the evolving scenario in much broader terms than ``opportunities and threats'' for profitability, Hindustan Lever Limited (HLL), the fast moving consumer goods (FMCG) giant, is truly outstanding. Over decades, the presiding doyens of this company have chosen through the chairman's speech, to address national economic issues and challenges, thereby clearly revealing a commitment to the larger interests of the country subsuming the corporate goals and commitments to a whole array of stakeholders, ranging from customers to the State.

Mr. M. S. Banga, the present Chairman of HLL, following the prestigious record set by his predecessors, has formulated a new vision for Indian agriculture or more precisely for the food processing industry as his message to the shareholders of the company at the AGM held last Friday (June 22) in Mumbai. It is a valuable contribution to the making (or unmaking?) of a food policy for the country with all that it involves in terms of liberating the farming community from the pitfalls of low productivity and the many other factors that are operating against it. What HLL is demonstrating through the Chairman's strategic vision is that the corporate sector has legitimate stakes in the country's overall economic direction and that its vision must be recognised as a vital contribution to policy- making at the national and State levels.

The agony of agriculture

Mr. Banga captures the central problem of Indian economy which really is that of declining rural incomes. The conventional wisdom needs to be reinstated that in India, a sustainable GDP growth at any level exceeding 6 per cent, can only occur if agriculture itself maintains a tempo of growth of around 4.5 per cent a year instead of the wide oscillations seen in recent years. Mr. Banga cites an econometric model according to which ``a modest incremental growth of 3 per cent in agriculture would lead to another 2.6 per cent growth in the manufacturing sector, taking overall GDP growth by 1.7 per cent - closer to the 8 per cent mark and the Tenth Plan ambitions.''

The agricultural situation today is such that while the majority of farmers are overwhelmed by low productivity and high input costs, the Government itself is saddled with huge stocks of foodgrains, costing around Rs.11,000 crores in terms of subsidies. The paradox is that while the farmers do not get a remunerative price despite the increase in procurement prices, the vast majority of consumers, especially the ``below the poverty level'' (BPL) sections, do not have enough purchasing power to secure their ration entitlements. In this sense, it is a myth that has flawed the food policy of our times that higher procurement prices, balanced somewhat by the hiking of issue prices for the public distribution system (PDS), would best reconcile the interests of both the producers and consumers. In reality, the country seems to have been caught in a crisis of low productivity compounded by a wasteful process of procurement, storage and physical distribution.

The anomaly, as Mr. Banga points it out, is that a mechanical adherence to ``the cost-plus'' model in fixing farm support prices has drawn the attention away from the malaise of low productivity and gross inefficiency in the food sector. What is the alternative to this ``cost-plus'' approach? Corporate cost accountants, in the early 1970s, used to apply ``value engineering'' models to assess whether it would be more prudent to ``make or buy'' parts and components. Mr. Banga brings in a similar approach - a customer-oriented cost policy or the ``challenge cost'' approach - to food pricing. In its application to food and its various processed forms, this ``challenge cost'' approach would show that a severe limitation to rural demand lies not only in low rural purchasing power but also in high retail- end price, whether in the PDS or in the open market.

A prescriptive holistic model

The HLL vision is three-pronged. First, the need is urgent for addressing the long-neglected issues of low productivity and avoidably high retail costs of inputs including credit. Precision farming, crop insurance, supply of inputs and leasing of farm equipment are all known methods of raising the level of productivity of the small farms but the country is far from the stage where all these can be mediated through a ``Farmer Service Centre'' concept, as suggested by Mr. Banga. It is not a coincidence that the eminent agricultural scientist, Dr. M. S. Swaminathan, has been pleading for some time for a new systemic approach to ``services'' for the small farmers in terms of inputs by way of knowledge of precision farming, prudent water management, crop selection, price information and weather data. As Mr. Banga envisions it, farmer service centres would not be run by bureaucrats or by quasi-governmental agencies. They would be private enterprises formed by the food processors (rice mills, flour mills and other processing units for fruits and vegetables) combining with banks, insurance companies, storage companies and so on. Of course, the model needs to be more closely examined in terms of the official bias against the entry of private corporates in the agriculture sector.

The second dimension of the HLL vision for the food sector is the question of revamping the legal framework for freeing trade in food commodities from the plethora of restrictions and for harmonising the multiplicity of food laws at the Central and State levels. There is little doubt that in a globalising milieu, we need to harmonise our divergent food laws and standards with the internationally recognised CODEX.

The third plank of the HLL perspective on the food sector is the vexed issue of fiscal levies on agricultural commodities of a bewildering multiplicity - mandi fee, octroi, entry tax, sales tax, turnover tax, Central excise and so on. The existing regime that discriminates packaged goods as against food products sold loose (with high proneness to spoilage and unhygienic handling), for the purpose of sales tax, certainly needs to be revisited.

Need for a national debate

The strategy set forth by Mr. Banga transcends corporate calculus. It deserves to be assimilated in the mainstream of national policymaking. The Planning Commission, which is about to give shape to the Tenth Plan, ought to examine Mr. Banga's thesis critically even if it runs counter to the inherited mindset that treats agriculture mainly as a system of food production largely devoted to the farmers' subsistence needs rather than as the basis of a vibrant economy much less as a virtuous circle of self-generating growth.

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