State sector should lead in reviving investment: Assocham

Reacting to Finance Minister Arun Jaitley's remark that all efforts will be made to stick to the current fiscal deficit target of 4.1 percent fixed by the previous UPA government, industry chamber Assocham Sunday said there is an urgent need for the government to lead the investment revival cycle.

"Heavens would not fall if the fiscal target of 4.11 percent in the current fiscal year is not met. But it will be quite detrimental to the efforts for economic revival if different ministries are asked to squeeze their planned budget and such saving saves the day for the fiscal consolidation," Assocham said in a statement here.

The finance minister Friday said the government will go for major disinvestment in the next two-and-half months and will strive to stick to the fiscal deficit target of 4.1 percent in the current year.

Earlier this week, Prime Minister Narendra Modi named professor at Columbia University Arvind Panagariya, whose views on the economy are considered similar to those of Modi, vice chairman of the Niti Aayog that has replaced the Planning Commission.

Assocham said with manufacturing sector down in "the dumps", there is little current prospect of investment revival in the private sector "when the existing capacity remains unutilised to the extent of 30-40 percent in several industries".

Besides, the private sector is finding it difficult to service their heavy debt under an interest rate regime which remains hostile to consumer demand and investors' risk appetite, the chamber said.

"Under these circumstances, the only way left for investment to return is through state funding of the infrastructure - both economic and social as also asking the cash rich public sector companies to create additional capacity and expansion either through new projects or through asset acquisitions. The public spending on infrastructure has to increase rather than decrease, as there are apprehensions about the same," Assocham secretary general D.S. Rawat said.

According to Assocham, the states were right "when they recently asked the Centre not to remain rigid on the fiscal deficit number and be liberal with spending."

"That is only way we can revive growth in the economy which is faced with a number of risk factors despite some turnaround because of reforms being taken up by the government," it added.

Jaitley said Wednesday that the Niti Aayog will financially empower states as they can choose the central government schemes based on their requirements.

"The Niti Aayog... (will) financially empower the states so that they can decide what schemes on those central fundings help them the most and therefore this is going to further... empower the states," Jaitley said at the two-day Bengal Global Business Summit in Kolkata.