In what could be termed as second round of stimulus, the government today announced measures that by its own estimate would give a demand boost of Rs 1 lakh crore. The measures announced today largely fall in two categories – one, boosting consumer demand and another giving a push to capital expenditure by the Central as well as state governments.
For boosting consumer spending, the government today announced special tax exemption for Central government employees, who get Leave Travel Concessions (LTC) in a block of 4 years leave encashment of 10 days. According to the finance minister, employees are not in a position to avail of LTC in the current block of 2018-21 due to COVID-19, so the government in lieu of one LTC during 2018-21 is offering full payment on leave encashment and payment of fares (for air and rail travel).
Under LTC cash voucher scheme, the fare payment will be tax free only if the employees either purchase goods or services, 3 times the amounts claimed as a concession in respect of travel tickets within 31 March 2021. Besides, the goods and services purchased should be those on which GST is 12% or more, the expense should be incurred through digital mode and that GST invoices are to be furnished to avail tax exemptions on travel fares.
This according to the government estimates would boost consumer demand worth Rs 28,000 crore if only one-fourth of the Central government employees and half of the state government employees avail the scheme. If employees in the private sector also avail the scheme, it will lead to consumer demand worth another Rs 28,000 crore.
In another measure announced to boost consumer demand, Finance Minister Nirmala Sitharaman said that a special one-time festival advance of Rs 10,000 will be paid to all central government employees in the form of pre-paid Rupay card. This advance will have to be spent by 31 March 2021. The advance will have to be paid back in maximum 10 installments.
As per the finance ministry estimates, this scheme will lead to Rs 4,000 crore disbursement. “If given by all state governments, another Rs 8,000 crore is likely to be disbursed; assuming 50% adoption by states estimate is Rs 4,000 crore,” said the finance minister.
Tarun Bajaj, Secretary, department of economic affairs, said that these are conservative estimates and that the government expects the consumption demand could be more than their estimate of Rs 36,000 crore due to these two schemes. Meanwhile, in order to boost capital expenditure by the state governments, the Central government has announced Rs 12,000 crore special interest free 50-year loans scheme to states.
It has three components — Rs 2,500 crore for North East (Rs 1,600 crore), Uttarakhand and Himachal (Rs 900 crore); Rs 7,500 crore for other states, in proportion to share in Finance Commission devolution, and another Rs 2,000 crore for states that meet at least three out of the four reforms given in Atma Nirbhar fiscal deficit package.
The finance minister said that the loan will be over and above all other additional borrowing ceilings given to states. However, the states will have to spend all the loan amount by 31 March 2021 on existing or new projects. States will not have to service this loan for 50 years.
Apart from that the finance minister also announced that the Centre will spend an additional Rs 25,000 crore on capital expenditure over and above the budgeted amount of Rs 4.13 lakh crore allocated for capital expenditure. The government has maintained that no additional borrowings will be required by the centre to meet the additional expenses incurred due to the measures announced today.
Also read: Rs 10,000 one-time festival advance scheme announced for all govt employees
Also read: Centre’s Rs 12,000 crore interest free 50-year loans to states: Which state will get what?