Govt must jack up public expenditure to push consumption: Assocham

Arguing that private consumption will take a “significant hit” at least in the next two quarters following demonetisation, Assocham on Sunday  said the government should ramp up its public expenditure in 2016-17.

“As against Rs 5.15 lakh crore in the second quarter of the current fiscal, the government expenditure, at market prices, should be jacked up to Rs 7 lakh crore for each of the third and fourth quarters, even if some fiscal imbalances take place for the sake of growth,” Assocham said.

The chamber said focus should be on sectors like roads and highways, ports, railway, telecom infrastructure, irrigation, flood control and rural upliftment programmes. It wants the government to devise ways to ensure construction of projects does not suffer on account of cash shortage.

The private final consumption expenditure (PFCE) accounts for close to 60 per cent of the country’s gross domestic product (GDP) at current prices and 55 per cent at constant prices (base 2011-12), the industry body said.

“With 86 per cent of the cash out of circulation and replenishment facing difficulties, PFCE in the third quarter is expected to see a sizeable reduction to the extent of at least 35-40 per cent and slightly lower in the fourth quarter,” Assocham said.

“Surely, when an important component accounting for 60 per cent of GDP takes a hit to this extent, the overall impact is bound to be significant.”  In terms of numbers, PFCE, at current prices, was estimated at Rs 21.78 lakh crore in July-September of 2016-17 with a growth of 12.4 per cent over the similar period last year.

At constant prices, it was estimated at Rs 16.26 lakh crore for July-September with the growth of 7.6 per cent, the chamber pointed outIt suggested that ministries that have been earmarked the annual budget, should step up their expenditure aggressively in case the damage has to be offset from demonetisation in the short to medium term, noting that the government expenditure accounts for 14 per cent of GDP.