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INR 73,000 Crore to Stimulate Consumer Spending in Economy: Finance Minister

Nirmala Sitharaman announced measures of INR 73,000 crore to stimulate consumer spending in the economy in an effort to fight the slowdown due to COVID-19 pandemic
BY BEx Bureau
BusinessEx
Oct 12, 2020

The Union Minister for Finance and Corporate Affairs, Nirmala Sitharaman has lately announced measures of INR 73,000 crore to stimulate consumer spending in the economy in an effort to fight the slowdown due to COVID-19 pandemic following lockdown.

While announcing the demand stimulus package, Sitharaman said, "Indications are that savings of government and organised sector employees have increased and we want to incentivise such people to boost demand for the benefit of the less fortunate."

The Finance Minister further said that if demand goes up based on the stimulus measures announced today, it will have an impact on those people who have been affected by COVID-19 and are desperately looking for demand to keep their business going.

The Finance Minister stressed on the idea that todays solution should not cause tomorrows problem. Sitharaman said that the government does not want to burden the common citizen with future inflation and also not put the government debt on an unsustainable path.

The proposals presented by the Finance Minister are designed to stimulate spending in a fiscally prudent manner as some of the proposals are for advancing or front-loading of expenditure with offsetting changes later while others are directly linked to increase in GDP. The present announcement by Sitharaman highlights the active intervention by the Indian government to combat the economic slowdown created by COVID-19. The details are as follows: -

CONSUMER SPENDING

  • Leave Travel Concession (LTC) Cash Voucher Scheme

While announcing the scheme, the Finance Minister said, "The biggest incentive for employees to avail the LTC Cash Voucher Scheme is that in a four-year block ending in 2021, the LTC not availed will lapse, instead, this will encourage employees to avail of this facility to buy goods which can help their families."

The Central Government employees get LTC in a block of 4 years in which air or rail fare, as per pay scale/entitlement, is reimbursed and in addition, leave encashment of 10 days (pay + DA) is paid. However, due to COVID-19, employees are not in a position to avail of LTC in the current block of 2018-21.

Therefore, the government has decided to give cash payment in lieu of one LTC during 2018-21, in which:

  • Full payment on Leave encashment and
  • Payment of fare in 3 flat-rate slabs depending on class of entitlement
  • Fare payment will be tax free

An employee, opting for this scheme, will be required to buy goods or services worth 3 times the fare and 1 time the leave encashment before 31st March 2021.

The scheme also requires that money must be spent on goods attracting GST of 12 per cent or more from a GST registered vendor through digital mode. The employee is required to produce a GST invoice to avail the benefit.

If the central government employees opt for it, the cost will be around INR 5,675 crore. Employees of Public Sector Banks (PSBs) and Public Sector Undertakings (PSUs) will also be allowed this facility and the estimated cost for them will be INR 1,900 crore. The tax concession will be allowed for state government or private sector too, for employees who currently are entitled to LTC, subject to following the guidelines of the central government scheme. The demand infusion in the economy by the central government and central PSE or PSB employees is estimated to be INR 19,000 crore approx. The demand infusion by the state government employees will be INR 9,000 crore. It is expected that it will generate additional consumer demand of INR 28,000 crore.

  • Special Festival Advance Scheme

A special festival advance scheme for non-gazetted employees, as well as for gazetted employees too, is being revived as a one-time measure to stimulate demand. All Central Government employees can now get an interest-free advance of INR 10,000, to be spent by 31st March, 2021 on the choice of festival of the employee. The interest-free advance is recoverable from the employee in maximum 10 instalments.

The employees will get a pre-loaded RuPay Card of the advance value. The government will bear bank charges of the card. Disbursal of advance through RuPay card ensures digital mode of payment, resulting in tax revenue and encouraging honest businesses.

The one-time disbursement of Special Festival Advance Scheme (SFAS) is expected to amount to INR 4,000 crore; and if the SFAS given by all State Governments, another tranche of INR 8,000 crore is expected to be disbursed.

CAPITAL EXPENDITURE

  • Special Assistance to the States:

While announcing measures related to Capital Expenditure, Sitharaman said that money spent on infrastructure and asset creation has a multiplier effect on the economy. It not only improves current GDP but also future GDP. The government wants to give a new thrust to Capital Expenditure of both States and Centre.

Giving a new thrust on Capital Expenditure, Sitharaman said that money spent on infrastructure and asset creation has a multiplier effect on the economy. It not only improves current GDP but also future GDP. The government wants to give a new thrust to Capital Expenditure of both states and centre. Sitharaman said that the Central Government is issuing a special interest-free 50-year loan to States of Rs. 12,000 crore Capital Expenditure. The Scheme consists of 3 Parts.

Part - 1 of the scheme provides for:

  • INR 200 crore each for 8 North East states (INR 1,600 crore)
  • INR 450 crore each Uttarakhand, Himachal Pradesh (INR 900 crore)

Part - 2 of the scheme provides for:

  • INR 7,500 crore for remaining states, as per 15th Finance Commission devolution

The Finance Minister said that both Part 1 and Part 2 of interest-free loans given to States are to be spent by 31st March, 2021 and 50 per cent will be given initially, the remaining 50 per cent will be given upon utilization of the first 50 per cent. Unutilised funds will be reallocated by the Central Government.

Under Part - 3 of INR 12,000 crore interest-free loans to states, INR 2,000 crore will be given to those states which fulfill at least 3 out of 4 reforms spelled out in Aatma Nirbhar Bharat Package (ANBP) vide Department of Expenditures Letter F.No. 40(06)/PF-S/17-18 Vol. V dated 17th May 2020. Rs 2,000 crore is over and above other borrowing ceilings.

Following are the features of this Scheme:

  • It can be used for new or ongoing capital projects needing funds and / or settling contractors/ suppliers bills on such projects
  • CAPEX to be spent by 31st March 2021
  • This funding will be over and above all other additional borrowing ceilings given to states
  • Bullet repayment after 50 years, no servicing required for 50 years

Enhanced Budget Provisions:

The Finance Minister said that an additional budget of INR 25,000 crore, in addition to INR 4.13 lakh crore given in the Union Budget 2020, is being provided for Capital Expenditure on roads, defence, water supply, urban development and domestically produced capital equipment.

To allow smooth conducting of Government business, allocations will be made in forthcoming Revised Estimate discussions of the Ministry of Finance with concerned ministries.

It may be recalled that a package of INR 1.70 lakh crore under Pradhan Mantri Garib Kalyan Package (PMGKP) was announced on 26th March, 2020 and the Aatma Nirbhar Bharat Package (ANBP), a special economic and comprehensive package of Rs 20 lakh crore - equivalent to 10 per cent of Indias GDP.

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