Govt moves to push demand with ₹73,000-cr stimulus targeting Central employees, States

Our Bureau. New Delhi | Updated on October 12, 2020 Published on October 12, 2020

Finance Minister Nirmala Sitharaman

Staff can buy goods for LTC amount, to get festival advance; States to receive Rs 12,000 cr

In a pre-Diwali stimulus, Finance Minister Nirmala Sitharaman moved to put cash in the hands of Central government staff to encourage them to spend and revive demand and also give 50-year interest-free loan to States for capex, all adding up to ₹73,000 crore of stimulus to help the economy beat the Covid blues.

Announcing the schemes to the media, Sitharaman said that initiatives announced earlier addressed the needs of the poor and the weaker sections.

“While supply constraints have eased, consumer demand is still affected,” she said adding that Covid has stopped the use of Leave Travel Concession. Now, Sitharaman will give Central government staff cash voucher for their allowance entitlement to make purchases of their choice.

An employee gets LTC in a block of four years to go anywhere in India or home travel or opt for two home travel.

The fare is reimbursed, according to the employee’s grade, and is tax-free. Leave encashment up to 10 days is allowed, though that is taxable.

Big bonanza

The bonanza for the Central staff has two components — the LTC Cash Voucher Scheme and a Special Festival Advance. In the first, employees can get cash amounting to leave encashment, plus three times the ticket fare, to buy items which attract a GST of 12 per cent or more. Only digital transactions are allowed, and the GST invoice is to be produced. The purchase must be done before March 31, 2021.

While the leave encashment will be taxable, the fare component will get tax benefit but limited to the deemed, or one-time, fare.


“If Central Government employees opt for the scheme, the cost will be around ₹5,675 crore,” Sitharaman said adding that it would jump by ₹1,900 crore if employees of Central PSUs and public sector banks also opt for it. State Governments can also offer this facility.

“Additional consumer demand generated will be ₹28,000 crore,” said the Minister. And, if the private sector also chips in, then a demand generation of an equal amount can be expected, she said.

Under the Special Festival Advance, all the Central Government employees will be eligible for an interest-free loan of ₹10,000. This amount will be given as a preloaded RuPay card and will be recovered in 10 equal instalments. The amount actually spent will be recovered while the balance will lapse after March 31, 2021. In the other segment, Sitharaman said States will be offered a special interest-free 50-year ₹12,000-crore loan. This includes ₹2,500 crore for North-East States, Uttarakhand and Himachal Pradesh; ₹7,500 crore for other States and ₹2,000 crore for States that complete three of the four Atmanirbhar Bharat reforms.

Additional allocation

“The amount needs to be repaid as a bullet payment after 50 years,” Sitharaman said. This means States will not be required to service the debt every year. This assistance would be over and above the additional borrowing already sanctioned. The Centre will also provide an additional ₹25,000 crore (besides the ₹4.13-lakh crore given in the Budget 2020-21) for capital expenditure on roads, defence, water supply, urban development and domestically produced capital equipment.

Prime Minister Narendra Modi tweeted: “Today’s announcements by FM @nsitharamanJi are timely moves which will boost consumer spending and sentiment as well as push capital expenditure. These steps will also boost demand in our economy.”




Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

Published on October 12, 2020
  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.