Demonetisation: India Inc urges more public spending to limit GDP fall

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SME Times News Bureau | 05 Dec, 2016
With private consumption being grossly affected by the cash crunch because of the demonetisation of high value bank notes, industry chamber Assocham on Sunday urged the government to ramp up expenditure in order to partly limit the major impact on India's GDP.

"With 86 per cent of the cash out of circulation and replenishment facing difficulties, the Private Final Consumption Expenditure (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," the Associated Chambers of Commerce and Industry of India said in a statement here.

"In terms of expenditure, PFCE, popularly known as -- India consumption story -- accounts for close to 60 per cent of the country's Gross Domestic Product at current prices and 55 per cent at constant prices (base 2011-12)," it said pointing to the enormity of the figures involved in case of the GDP.

The maths of the Assocham estimates point to a contraction of 2.5 per cent of the GDP in the ongoing third quarter, which will become worse for the final quarter of the fiscal.

For the whole fiscal, the contraction in GDP works out to 1.25 per cent, whose impact, however, will be felt in concentrated form over the remaining less than five months of the financial year.

PFCE at current prices for the previous quarter ended September has been estimated at Rs 21.78 lakh crore, registering a growth of 12.4 per cent over the corresponding period of last year.

"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," Assocham Secretary General D. S. Rawat told IANS.

"We urge that as against Rs 5.15 lakh crore in the second quarter, government expenditure, at market prices, should be jacked up to Rs 7 lakh crore for each of the third and fourth quarter for the sake of growth," he said.

"India's informal economy has been badly hit by demonetisation, jobs will be hit and we urge the government to minimise the impact," he added.

Assocham suggested that various ministries, which have been earmarked in the annual budget, should exceed their expenditure aggressively towards damage control.

"Government expenditure itself accounts for a good part of the GDP to the extent of 14 per cent," the business chamber said.