In the upcoming Union Budget, the government is expected to focus on infrastructure and the rural sector. The prime objective is to generate employment in the rural sector by the implementation of various measures.
The theme of domestic consumption has become one of the biggest opportunities for India Inc. through various factors like favourable demography, increasing disposable household income and revival of consumption demand from rural India.
India is the youngest nation among major economies, with a median age of just 28 years. Moreover, 67 percent of the Indian population is in the age group of 15-64 years provides a large amount of labour force.
According to Economist Intelligence Unit (EIU), the working age population is estimated to expand by 1.4 percent per annum. over 2015-2020 to 93 crore by 2020. The discretionary consumption is poised to grow with such a huge working-age population.
The large working population (67 percent of total population) will drive median household income in India to USD 5,942 by 2020 from USD 4,571 in 2017 (EIU estimates). As a rub off, recovery in household spending will revive growth in the consumer sector. Household consumption expenditure is expected to rise to USD 2 trillion by 2020 from USD 1.4 trillion in 2017, according to EIU.
The rural demand will witness an upward trajectory after three years of slow growth supported by two consecutive good monsoons.
Moreover, rural wages are also reviving – in September 2017 the nominal rural wages were up 7.1 percent year-on-year and real rural wages rose by 4.5 percent year-on-year (YoY).
In addition, in order to double the farm income by 2022, the government has allocated Rs 1.07 lakh crore for expenditure on rural development, out of which Rs 48,000 crore is allocated to MNREGA for FY2017-18.
In the upcoming Union Budget, the government is expected to focus on infrastructure and the rural sector. The prime objective is to generate employment in the rural sector by the implementation of various measures.
The Modi government has been under pressure from its political opposition as well as the public to create jobs, as a painful demonetisation drive and the new goods and services tax (GST) have virtually crippled the informal sector of the economy, wiping out millions of low-skill jobs.
The Finance Ministry and Commerce Ministry are actively looking at ways to boost exports in a bid to narrow the trade deficit. The exporting sectors are key job creators in the economy.
The government has been also focusing on agricultural subsidies to increase productivity and yields from cultivation. The central government launched the direct benefit transfer (DBT) for fertilisers in various states in the month of October 2017.
This ensures that there is no extra burden on farmers as they will continue to get fertilisers at a subsidised rate. Such measures would increase the disposable income in rural India and drive the consumption pattern in India.
The Finance Minister is likely to announce policies and programs beneficial for the rural economy.
Stocks to Watch:
Some of the stocks that are likely to benefit from the consumption-oriented landscape and likely consumption sector friendly sops in the Budget are Hatsun Agro, Jyothy Laboratories, and Varun Beverages.
Hatsun is a leading organised Indian dairy player with a dominant position in South, expanding to Maharashtra and Odisha. Jyothy Laboratories is an FMCG company predominantly present in fabric care and dish wash categories. Varun Beverages is the second largest franchisee of PepsiCo in the world (ex-USA), contributing around 47 percent of PepsiCo India’s volume.
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