Finance Minister Nirmala Sitharaman on Monday said that the coronavirus pandemic has “adversely affected” the Indian economy and consumer demands need to be stimulated. The minister announced LTC cash vouchers and special festival advance schemes for government employees to boost demand.
“The needs of the poor and weaker sections addressed in various announcements by the government,” Sitharaman said at a press conference in Delhi. “Supply constraints have somewhat eased but consumer demand still needs to be given a boost. The proposals being presented are designed in a way that they can stimulate demand by front-loading/advancing some of the expenditure with some offsetting changes.”
This came after the Indian economy saw its worst contraction in decades, with Gross Domestic Product shrinking by a record 23.9% in the April to June quarter and reflected the severe impact of the coronavirus-induced lockdown.
Sitharaman classified the proposals into two different categories – consumer spending and capital expenditure.
Under the LTC cash voucher scheme, the finance minister said that government employees can opt to receive cash amounting to leave encashment along with three times ticket fare to buy items which attract GST of 12% or more. The central government staff gets LTC in block of four years, which includes one to travel anywhere within country and three to visit their hometown.
“Indications are that savings of government and organised sector employees have increased, we want to incentivise such people to boost demand for the benefit of the less fortunate,” Sitharaman said. “What we are offering is to give the money to them based on three slabs – as per government rules and procedures – they could spend it to buy something of their choice.”
Sitharaman explained that the flat rate slabs are equivalent to the round ticket fare that the employees would have spent. “This must be spent on items that have 12% GST or more...You cannot use it to buy food that has 5% GST slab,” she added. “You can only spend them in digital mode only, no cash payments.”
If the central government employees opt for these benefits, it will cost around Rs 5,675 crore. If employees of Public Sector Undertakings and Public Sector Banks avail this facility, it will cost Rs 1,900 crore. Sitharaman said the demand infusion with this LTC cash voucher scheme will be about Rs 19,000 crore.
“States have their own LTC rules and they can come up with variations in the scheme,” she added. “So additional consumer demand generated, we expect, would be in the range of Rs 28,000 crore.”
Special Festival Advance scheme
She also announced that the Narendra Modi-led government will give Rs 10,000 special festival advance to all employees as a one-time measure to stimulate demand. “All central government employees can now get interest-free advance of Rs 10,000, in the form of a prepaid RuPay Card, to be spent by March 31, 2021,” Sitharaman said.
She said that the government expects consumer spending to be boosted by Rs 8,000 crore from this move, adding that Rs 4,000 crore will be disbursed by the Centre under this provision. “We are not limiting it for any one festival or GST-only shops,” Sitharaman said. “You can spend it anywhere you want. But you cannot withdraw it as cash. The spending will have to be done by March 31, 2021.”
Special 50-year loan to states
The finance minister also announced that the Centre would advance a Rs 12,000 crore interest-free loan to the states for 50 years, so that they can undertake capital projects.
In the first part of the project, the government will lend Rs 200 crore each to the northeastern states and Rs 450 crore each to Himachal Pradesh and Uttarakhand.
The government will lend the remaining Rs 7,500 crore to the rest of the states in the second phase, according to the 15th Finance Commission.
In the third part of the scheme, the government will lend Rs 2,000 crore to the states which carry out certain reforms laid down in the Aatma Nirbhar fiscal deficit package.
Sitharaman said that the loans will have to spent entirely on new or ongoing capital projects. She also announced an additional capital expenditure of Rs 25,000 crore.
Modi lauds announcements
Prime Minister Narendra Modi praised the Centre’s announcements, saying that they will provide a boost to the economy.
“Today’s announcements Finance Minister Nirmala Sitharaman Ji are timely moves which will boost consumer spending and sentiment as well as push capital expenditure,” he tweeted. “These steps will also boost demand in our economy.”