As the private consumption would be taking a significant hit on account of cash crunch in the economy at least in the next two quarters, the government should make all efforts to at least partly limit the impact of demonetisation on the GDP by sharply jacking up its own expenditure during the fiscal 2016-17, the ASSOCHAM has said.
Measured in terms of expenditure, the Private Final Consumption Expenditure (PFCE) or popularly known as the ' India consumption story' accounts for close to 60 per cent of the country's Gross Domestic Product (GDP) at current prices and 55 percent at constant prices (base 2011-12).
"With 86 per cent of the cash out of circulation and replenishment facing difficulties, the 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. Surely, when an important component accounting for 60 per cent of the GDP takes a hit to this extent, the overall impact is bound to be significant," the ASSOCHAM said.
In terms of numbers, the PFCE, at current prices, was estimated at Rs 21.78 lakh crore in Q2 of 2016-17 with a growth of 12.4 percent over the similar period last year.
At constant prices, it was estimated at Rs. 16.26 lakh crore for the July-September quarter of the current fiscal with the growth of 7.6 per cent.
Different ministries which have been earmarked the annual budget, should exceed their expenditure aggressively in case the damage control has to be effected from the demonetisation in the short to medium term.
The government expenditure itself accounts for a good part of the GDP to the extent of 14 per cent.
"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 quarter, 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, railways, telecom infrastructure, irrigation, flood control and rural uplift programmes.
"Somehow, the government should devise ways to ensure that the construction of the projects do not suffer on account of shortages of cash," it added.
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