Govt trains guns on boosting consumer & capital demand with Rs 73K cr push

The govt estimates that today's announcements will give a Rs 73,000 cr boost to demand in the economy in this financial year

Finance Minister Nirmala Sitharaman on Monday announced the government's two-pronged move to boost capital expenditure and stimulate consumer demand. In order to bolster the economy, which has been hit hard by the coronavirus pandemic, the finance minister announced steps like advance part-payment of allowances to central government employees for spending during the festival season and a 50-year interest-free loan to states. The initiatives are estimated to cost Rs 73,000 crore.

Sitharaman announced the LTC Cash Voucher and Festival Advance Schemes to encourage government employees to spend more and boost demand in the economy.

As part of the announcement, central government employees who get Leave Travel Concession (LTC) for their travels will get an equivalent of the amount even without travelling. They could use the allowance to make purchases of their choice. This will apply to the purchase of goods that attract 12 per cent GST or more and can be spent on buying goods worth three times the fare and equal to the cash encashment. The spending will have to be done by digital mode only.

The scheme is being introduced against a backdrop where people are not travelling, so not encashing their LTC. The payment will remain tax-free and is to be done before March 31, 2021.

The Centre also revived a one-time festival advance scheme giving Rs 10,000 to every gazetted, non-gazetted government employee as a prepaid RuPay card to be used in any festival till March 31, 2021. The festival advance was ended in the 7th pay commission.

The scheme can infuse addition demand to the tune of Rs 8,000 cr, said the FM

The amount can be repaid in 10 installments and the bank charges of the card will be paid by the government. The amount can not be withdrawn in cash and can be only used digitally.

The government also announced special interest-free assistance to states for capital expenditure for Rs 12,000 crores. This has been divided into three parts:

• Part 1: Rs 1,600 cr for NE states and Rs 900 cr for Uttarakhand and Himachal (total Rs 2,500 cr)
• Part 2: Rs 7,500 cr for other states in proportion to share in Finance Commission devolution
• 50% initially (to be spent by March 31, 2021)
• Balance after use of first investment
• Unutilised funds to be reallocated
• Part 3: Rs 2,000 cr for states which meet at least 3 out of 4 reforms given in Atma Nirbhar fiscal deficit package (edited) 
• To be used for new or ongoing capital projects
• This can be used to settle bills of contractors or suppliers but it has to be spent before 31 March 2021.
• This fund will be over and above all other additional borrowing ceilings given to States

The FM announced enhanced budget provision of Rs 25,000 cr for capital expenditure by the Centre. The additional budget will be provided for expenditure on roads, defence, infrastructure, water supply, urban development, defence infrastructure and domestically produced capital equipment.

Allocations will be made in the forthcoming revised estimate discussions of Ministry of Finance with concerned ministeries, said the FM.