FM Sitharaman Announces Proposals To Stimulate Demand In Economy

Updated: Monday, October 12, 2020, 14:32 [IST]

On Monday, in a press conference to address economic issues, Finance Minister Nirmala Sitharaman announced proposals to stimulate demand in the Indian economy.

These measures announced were broadly classified as 1) Consumer Spending 2) Capital Expenditure

FM Sitharaman Announces Proposals To Stimulate Demand In Economy

Speaking first on the state of the economy, Sitharaman said that COVID-19 has adversely affected the economy adding that the Atma Nirbhar Bharat package announced in March and May have addressed the needs of the poor and weaker sections of the country. She said that while supply constraints due to the pandemic have eased, consumer demand has been impacted.

The proposals announced on Monday are for advancing or front-loading of expenditure with offsetting changes later while others are linked to improving GDP.

1) Consumer Spending

LTC Cash Voucher Scheme

Sitharaman said that government employees and many of those working in the organised sector employees have escaped the economic effects of the pandemic, and their protected earnings/increased savings could be utilised to benefit the less fortunate.

Under the LTC (Leave Travel Concession) cash voucher scheme, since the LTC otherwise utilised by government employees in a block of 4 years but cannot be done in the current block of 2018-21:

in lieu of one LTC during 2018-21, cash payment will be made;

full payment on leave encashment
payment of fare in 3-flat rate slabs
fare payment will be tax-free

If an employee is opting for the scheme, he/she will be required to

Buy goods/ services worth 3 times the fare and 1 time the leave encashment
Do it before 31 March 2021

The money will have to be spent on

goods attracting GST of 12% or more from a vendor through digital mode
GST Invoice will be required to be produced

Further, demand infusion in the economy by Central Government, PSB and PSU employees is estimated to be Rs approximately Rs 19,000 crore.

Special Festive Advance Scheme

It has been proposed to restore the Festival Advance to Government employees for festivals up to 31 March 2021. These were abolished as per the recommendations of 7th Pay Commission.

The government will provide Rs 10,000 interest-free advance to be recoverable in maximum 10 instalments. It will be provided as a pre-paid Rupay card which only be used for transactions but not withdraw in cash at ATMs.

The government expects Rs 4,000 crore to be disbursed in this regard and will generate consumer demand of Rs 8,000 crore.

2) Capital Expenditure

Special interest-free 50-year loan to State governments worth Rs 12,000 crore exclusively for capital expenditure. Of this, Rs 2,500 crore will be for North Eastern states (Rs 1,600 crore), Himachal Pradesh and Uttarkhand (Rs 900 crore), Rs 7,500 will be for other states and Rs 2,000 crore will be given to states that meet at least 3 of 4 reforms under Atma Nirbhar fiscal deficit package.

States will have to spend this amount on new or ongoing projects by 31 March 2021.