Govt must 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 jack up its public expenditure in 2016-17.

"As against Rs 5.15 lakh crore in the second quarter (Q2) of the current fiscal, the government expenditure, at market prices, should be jacked up to Rs 7 lakh crore for each of the third (Q3) and fourth (Q4) 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% of the country's gross domestic product (GDP) at current prices and 55% at constant prices (base 2011-12), the industry body said.

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"With 86% of the cash out of circulation and replenishment facing difficulties, PFCE in the third quarter (Q3) is expected to see a sizeable reduction to the extent of at least 35-40% and slightly lower in the fourth quarter (Q4)," Assocham said.

"Surely, when an important component accounting for 60% 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% 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%, the chamber pointed out.

It 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% of GDP.

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