Centre announces Rs 12,000 cr interest-free 50-year loan for cash-strapped states

Finance ministry announces a slew of steps to boost consumption

Untitled design (13) Finance Minister Nirmala Sitharaman | ANI Twitter

In an attempt to provide some relief to cash-strapped states burdened by fall in GST collections and the Centre's reluctance to fully transfer the states's shares, the Union government has announced a Rs 12,000 crore interest-free 50-year loan to states for capital projects as part of plan to boost economic activities. While North East, Uttarakhand and Himachal Pradesh would get Rs 2,500 crore, Rs 7,500 crore has been set aside for other states and Rs 2,000 crore goes to the states that meet Centre's criteria, Finance Minister Nirmala Sitharaman announced in a press conference on Monday. 

The total money is stipulated to be spent before March 31, 2021. 

Further, the Centre also elaborated on other measures devised to boost consumption in the economy that has gone south due to COVID-induced lockdown. The government has gone to front-load the expenditure to stimulate demand and has announced new schemes, including an LTC cash voucher scheme and special festival advance. 

The Special Festival Advance Scheme has been announced for non-gazetted employees and is being revived as a one-time measure, for gazetted employees too. Under the scheme, all central government employees can now get an interest-free advance of Rs 10,000, in the form of a prepaid RuPay Card, to be spent by March 31, 2021. Employees can spend this on any festival and can be paid back in 10 instalments. 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, the minister said. 

Under the LTC Cash Voucher Scheme, government employees can opt to receive cash amounting to leave encashment plus 3 times ticket fare, to buy items which attract a GST of 12 per cent or more. Only digital transactions would be allowed and GST invoice would be produced in such transactions, Sitharaman said. "If the Central government employees opt for it, this will cost around Rs 5,675 crore. The employees of PSBs and PSUs are allowed to avail this facility, and for PSBs and PSUs the cost will be Rs 1,900 crore. The demand infusion in the economy by the Central government and PSUs will be around Rs 19,000 crore," the FM said. 

Even if 50 per cent of the states opt to give this facility, we think that this will bring in Rs 9000 crore, she added. 

The finance minister said that the pandemic has adversely affected the economy. "The needs of the poor and weaker sections addressed in various announcements by the government. Supply constraints have somewhat eased, but consumer demand still needs to be given a boost," she said. The proposals being presented at Monday's presser are designed in a way that they can stimulate demand by front-loading or advancing some of the expenditure with some offsetting changes. "Others are directly linked to an increase in the GDP," Sitharaman said. 

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