Finance Minister Nirmala Sitharaman
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FM discloses new demand stimulus package of finance, targets Rs 1 Lakh Crore spend by March end

Finance minister Nirmala Sitharaman disclosed a new demand stimulus package on Monday, offering incentives to consumers to spend more ahead of the festive season in order to stimulate the growth in the economy. She said the demand stimulus package has two focus areas — consumer spending and capital expenditure. In consumer spending, the package has two components — LTC encashment vouchers plus leave encashment, and special festival advances through pre-paid Ru-Pay cards.
|| Ann Mary Philip

Sitharaman projected ₹73,000 crore in public expenditure, including ₹28,000 crore on leave travel concession (LTC) vouchers and encashment by government employees, ₹8,000 crore on pre-paid special festival advances, ₹12,000 crore capital investment by states via 50-year interest-free loans from the Centre, and ₹25,000 crore additional capital spending on infrastructure projects by the Centre in 2020-21.

The finance minister said that if the private sector offered similar benefits to their employees, that can boost demand equal to the Centre and states combined, which is about ₹28,000 crore, which would take the total demand stimulus package to over ₹1 lakh crore. All benefits are available till March 31, 2021. She termed it as fiscally prudent proposals to stimulate demand in the economy. Central government employees get tax free LTC to any destination of their choice once every four years besides leave an encashment of 10 days. Sine travel is difficult during the Covid-19 pandemic, the government has decided to make cash payments for the fares, which is tax-free. The offer is one-time only, she said.

The offer unveiled by the government on Monday is conditional.

Employees taking up the offer will be required to buy goods and services worth three times the fare component of LTC  and the equivalent of leave encashment component of LTC before March 31, 2021.The money must be spent on products that attract a Goods and Services Tax (GST) rate of 12% or more from a GST-registered vendor through the digital mode, Sitharaman clarified.

Explaining the special festival advance, the second component of the consumer spending measure, Sitharaman said the government proposes to restore the festival advance as a one-time measure for its employees. It plans to give an interest-free advance of ₹10,000 per employee through a pre-paid RuPay card that can be repaid in 10 instalments. All such advances were abolished by the 7th Pay Commission. For Central government employees, this would call for an expenditure of ₹4,000 crore. If states also join, over ₹4,000 crore of additional consumer demand will be generated, she said.

The finance minister said the government has proposed a ₹12,000 crore special interest-free, 50-year loan scheme to states to be spent by March 31, 2021. According to the scheme, ₹200 crore each will be given to eight North-eastern states and ₹450 crore each to Uttarakhand and Himachal Pradesh. While ₹7,500 crore will be available to other states in proportion to their shares determined by the devolution of the Finance Commission, ₹2,000 crore will be given to those states that meet at least three out of four reforms given in the AtmanirbharBharat fiscal deficit package, she said while speaking about demand generation through capital expenditure.

Sitharaman said the Centre had also accepted the demand of states to raise their borrowing limit from 3% of their gross state domestic product (GSDP) to 5%; that would give them additional resources of ₹4.28 lakh crore during the Covid-19 crisis. The increased limit was, however, conditional and depended on implementation of reforms by them in four areas — one-nation, one-ration-card, ease of doing business, power distribution and urban local body revenues.

The government has decided to provide ₹25,000 crore in additional budget for capital expenditure on projects related to roads, defence infrastructure, water supply, urban development, defence infrastructure and domestically produced capital equipment. The budget already provides for ₹4.13 lakh crore of capital expenditure in the current financial year.

Sitharaman said that current proposals are designed to stimulate demand “in a fiscally prudent way” so that “today’s solution should not cause tomorrow’s problem”, referring to the ₹20.97 lakh crore economic stimulus-cum-relief package announced between March 26 and May 17.

The Congress party censured the government, saying the ₹ 12,000 crore to states for capital expenditure is a “no more than a lame joke” on the economy.“First, we are glad that the Finance Minister has had a belated realisation that consumer demand needs to be stimulated in the economy, something that we and almost every other sensible economist have clamoured for, over the last six months,” Congress spokesperson Gourav Vallabh andthe party’s technology and data cell head Praveen Chakravarty said.

“It was also a clear admission that the much hyped ₹20 lakh crore Atmanirbhar Bharat plan announced by Prime Minister Narendra Modito revive Indian economy from the damage caused by the Covid-19 in May is a dismal failure in protecting and reviving India’s ravaged economy,” they alleged.“But evidently lessons from that experience have not been learnt yet. Just because the PM or the FM call these measures an economic stimulus does not mean the economy will obey and get stimulated. The economy cannot be dictated to or swayed by headlines,” the Congress leaders said.

The latest offer by the government followed a record 23.9% contraction of the economy in the quarter ended June as the country paid the price for the coronavirus pandemic and the 68-day lockdown that closed factory production and business establishments, confined residents indoors and shut public transport. Gross domestic product is likely to contract this fiscal year by 9.5%, the Reserve Bank of India’s monetary policy committee forecast last week.

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