FinMin eyes demand boost of over Rs 1 lakh crore with festive season fillip

The government also announced measures to stimulate capital expenditure

PTI03-09-2020_000029B Finance Minister Nirmala Sitharaman | File

Ahead of the festive season, Finance Minister Nirmala Sitharaman announced a series of steps to boost demand in the economy, which had not revived to the extent the government had envisaged during its earlier financial measures. The measures, which aims to incentivise consumer spending as the government increases capital expenditure, will lead to a demand boost of over Rs 1 lakh crore.

Sitharaman announced a new scheme—LTC Cash Voucher Scheme—valid till March 31, 2021, where the central government employees can avail their leave travel concession (LTC) allowance, which otherwise would have lapsed by next year as travel was still restricted. But for them to avail this LTC money they would have to spend three times the ticket to do the shopping. “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 this facility to buy goods which can help their families,” finance minister said.

Sitharaman said, “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. On a conservative basis, we expect the LTC Cash Voucher Scheme to generate additional consumer demand in the range of Rs 28,000 crore.”

The detailed guidelines of the scheme will be issued later. “Under the LTC Cash Voucher Scheme, government employees can opt to receive cash amounting to leave encashment + 3 times ticket fare, to buy something of their choice. The items bought should be those attracting GST of 12 per cent or more. Only digital transactions are allowed, GST Invoice to be produced,” Sitharaman said.

The estimated cost of LTC Cash Voucher Scheme for central government comes to Rs 5,675 crore and for PSBs and PSUs at Rs 1,900 crore.

This is how it will work. If a central government employee was entitled for Rs 20,000 travel fare, she would have to spend Rs 60,000 in shopping. The incentive available for employees would be that in order to save Rs 20,000 from going waste or lapsing, she would have to shell out more. Those likely to benefit are the ones who were already planning to spend.  

The government said similar concessions would be extended to state governments and the private sector too—if they choose to give such facilities, these employees too can benefit.

The second part to boost demand is that the government will be extending a 'Special Festival Advance Scheme', which was earlier for the non-gazetted government employees is being revived as a one-time measure, for gazetted employees, too. “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. 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,” the finance minister said.

Apart from promoting consumer spending, the government also announced measures to stimulate capital expenditure.  Under this measure, the government would extend a special interest-free 50-year loan to states. A Rs 12,000-crore capital expenditure will be done. “Capital expenditure has a high multiplier effect. It raises not only the current GDP, but also future GDP, making debt more sustainable," FM said.

Under this scheme, Rs 2,500 crore will be given to north east (Rs 1,600 crore), Uttarakhand and Himachal (Rs 900 crore), while another Rs 7,500 crore will be available to other states. Another Rs 2,000 crore will be available for states that meet at least three out of four reforms given in Atma Nirbhar fiscal deficit package. 

Apart from the loan, capital expenditure boost is being given to the Centre government projects. The government will make provisions for an additional budget of Rs 25,000 crore (in addition to Rs 4.13 lakh crore given in Budget 2020-‘21) for capital expenditure on roads, defence, water supply, urban development and domestically produced capital equipment.

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

📣 The Week is now on Telegram. Click here to join our channel (@TheWeekmagazine) and stay updated with the latest headlines