Economy

Government expects ₹1-lakh crore of additional demand to be generated through new stimulus

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

Finance Minister Nirmala Sitharaman with MoS Finance Anurag Thakur addressing a press conference in New Delhi, on Monday   -  Kamal Narang

Experts feel new alternative for LTC could be a dampener as the condition of higher spend may not find many takers

 

The Centre on Monday announced fresh stimulus for the economy, focussing demand. This includes optional use of the Leave Travel Concession (LTC) facility for spending on consumer items, one-time restoration of festival advance and additional capital expenditure by the Centre and States.

However, experts feel that the new alternative for LTC could be a dampener as the condition of higher spend may not find too many takers.

In a press conference, Finance Minister Nirmala Sitharaman said that initiatives announced earlier such as Atmanirbhar Bharat, addressed the needs of the poor and weaker sections. “Supply constraints have eased, but consumer demand is still affected,” she said, while giving details of the scheme consisting of two components — Consumer Spending and Capital Expenditure.

Also read: ₹10-lakh-crore stimulus can get the economy back to 2019-20 growth levels, says Pronab Sen

The government expects total additional demand to exceed ₹1-lakh crore during the fiscal.

Consumer Spending

This has two components — LTC Cash Voucher Scheme and Special Festival Advance. LTC is a benefit given to Government employees and private sector employees in the organised sector. Under this, an employee gets LTC in a block of four years (one to travel anywhere in India & one to the home town, or two to the home town). The fare is reimbursed according to grades and there is no tax on it. There is another component, which is leave encashment up to 10 days; this is taxable.

Sitharaman said that since employees are unable to travel on account of Covid-19, this scheme will prescribe payment of fare and leave encashment to the employees. Now, the employees will be required to spend three times the fare and one-time of leave encashment to avail the benefit of the scheme. The amount needs to be spent on any good falling under GST rates of 12 per cent or above. Payment to be made digitally and GST invoice will be required to be presented.

The Minister said spending should be done before Mach 31, 2021. An employee opting for the scheme will get tax benefit on the fare but not on leave encashment. Further explaining that, Finance Secretary Ajay B Pandey said tax benefit on the fare component will be limited to deemed fare or one-time fare. This means one needs to spend ₹300 for getting tax benefit for ₹100.

“If Central Government employees opt for the scheme, the cost will be around ₹5,675 crore,” the Minister said, while ₹1,900 crore can be added if employees of Central PSUs and public sector banks opt for it. State governments can also offer this facility.

Also read:Economy to shrink 9% in FY21, says S&P

“Additional consumer demand generated will be ₹28,000 crore,” she said. If the private sector also chips in, additional demand for an equal amount can be expected.

Under the Special Festival Advance, all Central Government employees will be eligible for interest-free loan of ₹10,000. This amount will be given as pre-loaded RuPay card and recovered in 10 equal instalments. “The amount which is actually spent will be recovered while the balance will lapse after March 31,” Pandey explained.

Capital Expenditure

The Finance Minister said that there will be special interest-free 50-year loans to States for expenditure of ₹12,000 crore. This includes ₹2,500 crore for North Eastern States, Uttarakhand and Himachal Pradesh. ₹7,500 crore will be for other States, while ₹2,000 crore will be given to States which manage to complete three out of four reforms as announced under Atma Nirbhar Bharat.

“The amount needs to be repaid as bullet payment after 50 years,” Sitharaman said, which means States will not be required to pay for debt servicing during the year. This assistance would be over and above the additional borrowing.

On its part, the Centre has also decided to allocate ₹25,000 crore over and above the capital expenditure of ₹4.13-lakh crore. This will be spent mainly on road, defence, water supply and urban development.

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Published on October 12, 2020
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