Centre announces cash stimulus to revitalise economy
12 October 2020
Union finance minister Nirmala Sitaraman on Monday announced a slew of measures to stimulate demand and consumption in order to revitalise the economy that has been dampened by the lockdown restrictions announced by the government in the wake of the new coronavirus pandemic.
The stimulus package that includes 50-year interest-free loans for states to the tune of Rs12,000 crore for capital spending, a cash voucher scheme for government employees in lieu of leave encashment + 3 times ticket fare and similar private etc initiatives together expected to generate Rs1,00,000 crore of additional demand in the economy.
Of the Rs12,000 crore 50-year interest-free loans announced by the central government as special assistance for capital expenditure for states, Rs2,500 crore has been earmarked for Uttarakhand, Himachal Pradesh and Northeastern states.
Rs7,500 crore will be distributed to the other states in proportion of their share in the Finance Commission devolution.
Initially 50 per cent of the funds will be released and the remaining will be released after the first instalment is utilised. States which have met at least three out of four reforms under the Atma Nirbhar fiscal deficit package will receive the rest Rs2,000 crore.
These funds can be utilised for new or ongoing capital projects or for the settling of contractor or supplier bills. The loan repayment period will begin after 50 years and no loan servicing is required until that time.
This is over and above other borrowing ceilings.
“Capital expenditure that includes 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,” the finance minister said.
LTC Cash Voucher Scheme
Under 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, and GST invoice has to be produced for availing this benefit
The biggest incentive for employees to avail of the LTC Cash Voucher Scheme is that in a four-year block ending in 2021, the LTC not availed will lapse if not utilised. This will encourage employees to avail of this facility to buy goods which can help their families.
The LTC Cash Voucher Scheme is estimated to cost the central government around Rs5,675 crore while public sector banks and other public sector undertaking will have to bear Rs1,900 crore.
Tax concessions for LTC tickets available for state government and private sector too, if they choose to give such facility, these employees too can benefit.
“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 Rs28,000 crore”, Sitaraman said ahead of the GST Council meeting.
Extended Festival Advance Scheme
The Special Festival Advance Scheme, which was meant for non-gazetted government employees, is being revived as a one-time measure, for gazetted employees as well. All central government employees can now get interest-free advance of Rs10,000, in the form of a prepaid RuPay Card, to be spent by 31 March 2021.
The one-time disbursement of Special Festival Advance Scheme is expected to total Rs4,000 crore in the central sector. If all state governments too exten such festival advance schemes, another Rs8,000 crore is expected to be disbursed. Employees can spend this on any festival.
Capital expenditure boost for the centre
Additional budget of Rs25,000 crore (in addition to Rs4.13 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 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, said Sitharaman.
“We estimate that the measures announced today, for boosting consumer spending and capital expenditure will boost demand by Rs73,000 crore, to be spent by 31 March 2021. Given that private sector spending through LTC tax benefit would be at least Rs28,000 crore, we estimate total demand boost due to today's measures to be more than Rs1 lakh crore,” the minister added.
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.