Govt rolls out festival stimulus package

Nirmala proposes ₹73,000 cr in public expenditure, says if pvt sector joins in, stimulus worth ₹1L cr

Finance minister Nirmala Sitharaman unveiled a new demand stimulus package on Monday, offering incentives to consumers to spend more ahead of the festive season in an attempt to stir the economy out of stupor.

Sitharaman proposed ₹73,000 crore in public expenditure, including ₹28,000 crore on leave travel concession (LTC) encashment by government employees, ₹8,000 crore on pre-paid special festival advances, ₹12,000 crore capital investment by states via 50-year interest-free loans and ₹25,000 crore additional capital spending on infrastructure projects in 2020-21.

Announcing the Fiscally Prudent Proposals to Stimulate Demand in the Economy, the finance minister said that if the private sector offered similar LTC benefits to their employees in return for tax concessions, that would have an additional impact of ₹28,000 crore, which would take the total package to over ₹1 lakh crore.

Sitharaman said the demand stimulus package has two focus areas — consumer spending and capital expenditure. In consumer spending, the package has two components — LTC encashment vouchers plus leave encashment, and special festival advances through pre-paid RuPay cards.

Central government employees get LTC to any destination of their choice once every four years besides leave encashment of 10 days. As travel is difficult during the Covid-19 pandemic, the government has decided to make cash payments for the fares in line with the entitlement of government employees, which is tax-free, she said.

The latest offer by the government follows a record 23.9% contraction of the economy in the quarter ended June as the country paid the price for the coronavirus pandemic and the ensuing 68-day hard lockdown that closed factory production and business establishments, confined residents indoors and shut public transport. Gross domestic product (GDP) is likely to contract this fiscal year by 9.5%, the Reserve Bank of India’s monetary policy committee forecast last week.

To be sure, the offer unveiled by the government on Monday is conditional. Employees taking up the offer would be required to buy goods and services worth three times the fare and the equivalent of leave encashment before March 31, 2021. The money must be spent on products that attract a Goods and Services Tax (GST) rate of 12% or more from a GST-registered vendor through the digital mode, she added.

“We think that the central government employees, if they opt for it, this will cost around ₹5,675 crore. And employees of public sector banks and other public sector undertakings will also be allowed to avail this facility, and we think for them... the estimated cost will be ₹1,900 crore,” Sitharaman said.

The finance minister said the state governments and the private sector may also choose to offer similar benefits to their employees. “So, the demand infusion in the economy by Central

government and Central government public sector undertakings is estimated to be around ₹19,000 crore... and infusion, even if, just 50% of the states opt to give this facility,... we think, that will bring in about ₹9,000 crore,” she said.

Sitharaman said that if private sector companies offer similar benefits to their employees that can boost demand equal to the Centre and states combined, which is about ₹28,000 crore.

Economic affairs secretary Tarun Bajaj said that the ₹28,000 crore of demand generation by private sector employees was a conservative estimate; employers would be happy with the tax concessions offered on the sop, he said.

Explaining the special festival