This group comprises of two sectors – agriculture and allied sectors, and public administration, defence and other services.
Total contribution to growth is expected to be highest as the sectors under this group have suffered only limited disruption.
Agriculture and allied sectors
In the case of agriculture, rabi crop is currently being harvested and a good monsoon is predicted later in the year.
Despite some labour shortage issues, this sector may show near-normal performance.
Public and defence sector
This sector has been nearly fully active, especially with the health services at the forefront of the COVID-19 fight.
Group B sectors
This group comprises four sectors which may suffer average disruption.
These sectors are mining and quarrying, electricity, gas, water supply and other utility services, construction, and financial, real estate and professional services.
Group C sectors
Manufacturing sector has suffered significantly. However, it is feasible to stimulate this sector by supporting demand.
This sector requires strong policy support.
Group D sectors
This group is likely to suffer maximum disruption.
This includes, trade, hotels, restaurants, travel and tourism under the broad group of “Trade, Hotels, Transport, Storage and Communications”.
Note:Considering these four groups together, a GVA growth of 2.9% is estimated for 2020-21.
Measures taken:
Monetary policy initiatives – RBI has reduced the repo rate to 4.4%, the reverse repo rate to 3.75%, and cash reserve ratio to 3%.
RBI has also opened several special financing facilities.
The Centre has announced a relief package of ₹1.7-lakh crore.
Now, these measures need to be supplemented by an appropriate fiscal stimulus.
What measures are required?
The actual growth outcome for India would depend on 3 important areas –
the speed at which the economy is opened up;
the time it takes to contain the spread of virus, and,
the government’s policy support.
Need for Fiscal Stimulus
Fiscal stimulus can be of three types:
relief expenditure for protecting the poor and the marginalised;
demand-supporting expenditure for increasing personal disposable incomes or government’s purchases of goods and services, including expanded health-care expenditure imposed by the novel coronavirus, and,
bailouts for industry and financial institutions.
Way ahead:
Centre’s budgeted fiscal deficit of 3.5% of GDP may have to be enhanced substantially and provide for a stimulus.
Expenditure on construction of hospitals, roads and other infrastructure and purchase of health-related equipment and medicines require prioritisation. These expenditures will have high multiplier effects.
Similar initiatives may be undertaken by the State governments under their respective Fiscal Responsibility Legislation/Law and to provide for the shortfall in their revenues and some stimulus.
Connecting the dots:
Do you think India needs a strong fiscal stimulus when already its fiscal deficit poses a major challenge?
Which sector needs major policy support and why? What measures are needed?
