Published on 18/05/2020 2:41:14 PM | Source: ICICI Securities Ltd

Economy - Prioritizing sectors for fiscal support: Agriculture, construction, manufacturing top the list - ICICI Sec

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Prioritizing sectors for fiscal support: Agriculture, construction, manufacturing top the list

* Market is expecting more fiscal support: While India has imposed one of the strictest lockdowns in the world, its fiscal response to the resultant economic shock is one of the weakest in the world. The market is expecting the government to announce more fiscal support in the coming weeks.

* Preventing job losses, quickly reviving economy crucial objectives: The lockdown has resulted in widespread job losses and the pain on the employment front is expected linger in the near term. Given the nature of the crisis, we believe the primary objective of policy response should be to prevent further job losses, protect future consumption and retain the ability to quickly revive the economy once the lockdown is lifted.

* We used six criteria to prioritise sectors for fiscal support: Given the limited fiscal space, government support will have to be judiciously used. We use six criteria to prioritise sectors for potential fiscal support – contribution to the economy, input linkage with other sectors in the economy, employment generation, share of self-employed and casually employed in total employment, labour intensity of production and investment rate.

* Agriculture, construction, manufacturing emerged as top priority sectors…: We ranked the sectors based on the above-mentioned six criteria. Our analysis shows that agriculture, construction and manufacturing sectors should be prioritized for allocating stimulus in order to maximise its impact. Public administration and ‘other services’ (such as education and healthcare) and ‘transport and storage’ feature fourth, fifth and sixth on the list.

* …while financial services, mining, telecom relatively low priority sectors: Given its low employment share (only three other sectors employ fewer people than financial services), lowest investment rate among all sectors and very low share of self-employed and casually employed, financial services sector stands the bottom of the priority list. Sectors with comparable employment, investment rate and selfemployed statistics such as mining and telecom also feature low on the list.

* Policy instruments could include higher rural spending, wage support: Policy instruments for potential support could include higher spending under PM-Kisan and MNREGA (for agriculture and rural sector), partial reopening of construction activity and wage support, MSME stimulus package, and no further pay cuts/ deferment of salaries for government employees.


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