Note Ban: India Inc Asks Govt to Spend More to Curb Fall in GDP

People wait outside a bank to exchange scrapped currency notes in New Delhi on 11 November 2016. (Photo: IANS)

As the cash crunch has grossly affected private consumption of individuals, Assocham on Sunday urged the government to ramp up expenditure in order to partly limit the major impact on India’s GDP.

With 86 percent 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 percent and slightly lower in the fourth quarter.

Assocham statement

"In terms of expenditure, PFCE accounts for close to 60 percent of the country's GDP at current prices and 55 percent 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 percent 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 percent, 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 percent over the corresponding period last year.

"When an important component accounting for 60 percent of the GDP takes a hit to this extent, the overall impact is bound to be significant," Assocham Secretary General DS Rawat said.

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

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

(With inputs from IANS)