FM Sitharaman announces Stimulus to boost Demand in the Economy: Highlights
Finance Minister Nirmala Sitharaman addressed a press conference on economic issues at National Media Centre, New Delhi. In the press conference, the FM announced a Rs 12,000 crore interest-free 50-year loan to states for spending on capital projects in a bid to boost the economy.
She further announced a one-time Rs 10,000 interest-free festival advance to all its officers and employees as part of plans to increase consumer spending to spur demand in the economy. Highlights of FM announcement of Stimulus to boost Demand in the Economy.-
1) 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, 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% 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. : Rs 5,675 crore; for PSBs & PSUs: Rs 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
Indications are that savings of govt. and organized sector employees have increased, we want to incentivize 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.
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.
2) Measures to Stimulate Capital Expenditure
2A) Capital Expenditure Boost for States
A special interest-free 50-year loan to states is being issued, for Rs 12,000 crore capital expenditure
- Rs 200 crore each for 8 North East states
- Rs 450 crore each Uttarakhand, Himachal
- Rs 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 Rs 12,000 crore interest-free loans to states, Rs 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
2B) Capital Expenditure Boost for the Centre
Additional budget of Rs 25,000 crore (in addition to Rs 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.
Estimated Impact of Stimulus Measures
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 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.
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