Budget thrust needed on sectors hit hardest by cash crunch: Crisil Research

New Delhi: The Union Budget 2017-18 should focus on labour intensive sectors -- small and medium enterprises, construction, rural roads -- that were hit the hardest as a fall-out of demonetisation, Crisil Research said on Friday.

For immediate benefits, the forthcoming budget should choose to support sectors hit hardest by demonetisation, and those that can immediately push job creation, such as the small and medium enterprises segment and construction, the report suggested.

Union Finance Minister Arun Jaitley will present the budget in Parliament on Wednesday.

"For the government, pushing the roads sector has always helped in times of crisis. Continued increase in government spending on rural roads, given its high employment intensity, can be a consumption kicker," it said.

The report said the labour intensive sectors such as agriculture, construction and manufacturing have been falling short of the overall GDP growth.

"Growing at 3-3.5 per cent per year, agriculture is unlikely to become India`s growth engine. In fact, people need to be moved out of overcrowded agriculture to high growth and high productivity sectors," it said.

In the past three years, financial services, real estate, professional services, public administration, defence, community services, trade and hospitality sectors have grown way faster than GDP, the report said.

But of these, only the trade, hotels and restaurants sector is labour intensive. In contrast, other fast-growing sectors, despite having a larger share in output, have low labour intensity.

"The last three years have seen a slow-but-steady uptick in economic growth, but it is likely that this hasn`t been accompanied by commensurate job increase in employment," the report said.

Trouble is also brewing with the rapid adoption of technology, especially automation, which is reducing the labour-intensity of many industries.

"Policies will, therefore, have to support sectors with large job growth potential such that, despite slipping labour intensity, absolute employment continues to increase. Additionally, the policy focus should also in preparing the youth for new job opportunities," Crisil Research stated.

For longer-term benefits, policies should focus on reducing over-employment in agriculture by providing opportunities outside of the farm sector, push the manufacturing sector by emphasising on `Make for India` and design policies to push growth in labour-intensive services sectors, it said.

"Meanwhile, the services sector can also contribute to the employment drive. Specifically, sectors such as education, health, trade, hotels and restaurants and community, social and personal services could potentially be large employers. But here, the supportive role played by education and skill development will be critical," it added.