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Bengaluru, NFAPost: Finance Minister Nirmala Sitaraman announced initiatives that will give an estimated Rs 73,000 crore boost to demand along with interest free Rs 12,000 crore 50-year loan to state governments and Rs 10,000 interest free festival advance to central government employees.

Speaking at the press conference, Finance Minister Nirmala Sitaraman said the measures announced today, for boosting consumer spending and capital expenditure, will boost demand by Rs 73,000 crores, to be spent by March 31, 2021.

“Given that private sector spending through LTC tax benefit would be at least ₹ 28,000 crore, we estimate total demand boost due to today’s measures to be more than ₹ 1 lakh crore – Finance Minister,” said Nirmala Sitaraman.

Finance Minister Nirmala Sitharaman announced a Leave Travel Concession (LTC) cash voucher scheme to increase consumer spending. Under this LTC Cash Voucher Scheme, government employees can opt to receive cash amounting to leave encashment, plus three times ticket fare, to buy items which attract a GST of 12 percent or more. Only digital transactions allowed, GST invoice to be produced, FM Nirmala Sitharaman said.

Savings of government

“There are indications that the 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. On a conservative basis, we expect the LTC Cash Voucher Scheme to generate additional consumer demand in the range of ₹ 28,000 crore,” said Nirmala Sitaraman.

The decision of finance minister comes at a time when the economy is reeling under the impact of Covid-19. She also made it clear that these measures will neither burden the common man nor raise government debt.

“We estimate that the measures announced today, for boosting consumer spending and capital expenditure, will boost demand by ₹ 73,000 crore, to be spent by March 31, 2021. Given that private sector spending through LTC tax benefit would be at least ₹ 28,000 crore, we estimate total demand boost due to today’s measures to be more than ₹ 1 lakh crore,” said Finance Minister Nirmala Sitaraman.

The Finance Minister also said if demand goes up based on the stimulus measures announced, 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.

Measures to Stimulate Consumer Spending

Proposals to stimulate consumer spending has two components

  • LTC Cash Voucher Scheme
  • Special Festival Advance Scheme

1A) LTC Cash Voucher Scheme

Under LTC Cash Voucher Scheme, the Government has decided to give cash payment to employees in lieu of one LTC during 2018-21, in which full payment on Leave encashment and tax-free payment of LTC fare in 3 flat-rate slabs depending on class of entitlement will be given. An employee, opting for this scheme, will be required to buy goods / services worth 3 times the fare and 1 time the leave encashment before 31st March 2021.The items bought should be those attracting GST of 12% or more. Only digital transactions are allowed, GST Invoice to be produced.

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.

Estimated cost of LTC Cash Voucher Scheme: For Central govt. : ₹ 5,675 crore; for PSBs & PSUs: ₹ 1,900 crore.

Tax concessions for LTC tickets available for state govt. & private sector too, if they choose to give such facility, these employees too can benefit

1B) Special Festival Advance Scheme

Special Festival Advance Scheme which was meant for non-gazetted government employees is being revived as a one-time measure, for gazetted employees too. All central govt. 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.

The one-time disbursement of Special Festival Advance Scheme is expected to amount to Rs. 4,000 crore; if given by all state governments, another Rs. 8,000 crore is expected to be disbursed. Employees can spend this on any festival.

Measures to Stimulate Capital Expenditure

2A) Capital Expenditure Boost for States

A special interest-free 50-year loan to states is being issued, for ₹ 12,000 crore capital expenditure

  • ₹ 200 crore each for 8 North East states
  • ₹ 450 crore each Uttarakhand, Himachal
  • ₹ 7,500 crore for remaining states, as per share of Finance Commission’s devolution

All the above interest-free loans given to states are to be spent by March 31, 2021; 50% will be given initially, remaining upon utilization of first 50%.

Under Part 3 of ₹ 12,000 crore interest-free loans to states, ₹ 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. This is over and above other borrowing ceilings.

Capital expenditure – money spent on infrastructure and asset creation – has a multiplier effect on the economy, it not only improves current GDP but also future GDP, we want to give a new thrust to capital expenditure of both states and Centre, says Union Finance Minister Smt. Nirmala SitharamaN

2B) Capital Expenditure Boost for the Centre

Additional budget of ₹ 25,000 crore (in addition to ₹ 4.13 lakh crore given in Budget 2020-‘21) is being provided for capital expenditure on roads, defence, water supply, urban development and domestically produced capital equipment.

The proposals to stimulate demand are designed to stimulate demand in a fiscally prudent way – some of them involve advancing of expenditure, with offsetting changes later – others are directly linked to increasing GDP

The Finance Minister’s press conference comes ahead of a meeting of the GST or Goods and Services Tax Council due later in the day.

Prime Minister Narendra Modi also praised Union finance minister Nirmala Sitharaman after she annouced measures worth Rs 73,000 crore to stimulate consumer spending in the economy in an effort to fight the slowdown due to the coronavirus pandemic.

Push demand

“Today’s announcements by FM @nsitharaman Ji are timely moves which will boost consumer spending and sentiment as well as push capital expenditure. These steps will also boost demand in our economy,” PM Narendra Modi tweeted.

The government, which had in May announced a Rs 20 lakh crore ‘Aatmanirbhar Bharat’ stimulus package, is pushing ahead with a full opening to try to boost the economy ahead of the usually high-spending festival season.

According to Arvian Research, it is interesting to note that the decision of the government comes after a tough lockdown imposed to contain the spread of coronavirus.

“We are witnessing a global crisis and India can never be out of this crisis. It is a fact that the impact has resulted in the GDP contracting by a record 23.9% during April-June. Indian economy is heading for its worst contraction this fiscal,” said Arvian Research.

It is also interesting to note that country is facing a rising food prices and it pushed retail inflation to an eight month high of 7.34% in September. This above the comfort levels of RBI and the apex bank will not go for a rate cut ahead of festival season. Also, it is grave to state that Index of Industrial Production (IIP) which was 10.8% in July now came down to 8.6% during August.

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