Sitharaman announces stimulus package to boost demand in economy
Union Finance Minister Nirmala Sitharaman addressing a press conference in New Delhi on October 12, 2020.

Sitharaman announces stimulus package to boost demand in economy

FM announces LTC Cash Voucher Scheme and Special Festival Advance for Central Government, PSB and PSU employees; additional budget for capital expenditure for States, Centre

New Delhi, October 12, 2020

Union Finance Minister Nirmala Sitharaman today announced a major stimulus package that she said is expected to boost demand by more than Rs 1 lakh crore in the economy that has been hit hard by the coronavirus (COVID-19) pandemic.

The package includes two components -- LTC Cash Voucher Scheme and Special Festival Advance Scheme -- to stimulate consumer spending, she said at a press conference here.

Under the LTC Cash Voucher Scheme, government employees can opt to receive cash amounting to leave encashment plus three times ticket fare, to buy something of their choice. The items bought should be those attracting GST of 12% or more. Only digital transactions are allowed, and GST Invoice will have to be produced.

The biggest incentive for employees to avail the LTC Cash Voucher Scheme is that in a four-year block ending in 2021, the LTC not availed will lapse. Instead, this will encourage employees to avail of this facility to buy goods which can help their families, the Minister said.

The estimated cost of the LTC Cash Voucher Scheme is Rs 5,675 crore for the Central Government and Rs 1,900 crore for public sector banks and public sector undertakings.

Tax concessions for LTC tickets will be available for state government and private sector too, if they choose to give such facility so that their employees can also benefit, she said.

Ms Sitharaman said the indications are that savings of government and organized sector employees have increased. "We want to incentivize such people to boost demand for the benefit of the less fortunate. On a conservative basis, we expect the LTC Cash Voucher Scheme to generate additional consumer demand in the range of Rs 28,000 crore," she said.

The Special Festival Advance Scheme which was meant for non-gazetted government employees is being revived as a one-time measure, for gazetted employees, too. All central government employees can now get interest-free advance of Rs. 10,000, in the form of a prepaid RuPay Card, to be spent by March 31, 2021.

The one-time disbursement of Special Festival Advance Scheme is expected to amount to Rs. 4,000 crore; if given by all state governments, another Rs. 8,000 crore is expected to be disbursed. Employees can spend this on any festival.

As part of measures to stimulate capital expenditure, the Finance Minister announced a special interest-free 50-year loan to states for Rs 12,000 crore capital expenditure.

This will include Rs 200 crore each for eight North East states, Rs 450 crore each for Uttarakhand and Himachal Pradesh and Rs 7,500 crore for the remaining states, as per the share of the Finance Commission's devolution.

These interest-free loans given to states are to be spent by March 31, 2021; 50% will be given initially and the remaining upon utilization of first 50%.

Under Part 3 of Rs 12,000 crore interest-free loans to states, Rs 2,000 crore will be given to those states which fulfill at least 3 out of 4 reforms spelled out in Aatma Nirbhar Bharat package. This is over and above other borrowing ceilings.

"Capital expenditure -- money spent on infrastructure and asset creation -- has a multiplier effect on the economy, it not only improves current GDP but also future GDP, we want to give a new thrust to capital expenditure of both states and Centre," Sitharaman said.

As capital expenditure boost for the Centre, the Minister said an additional budget of Rs 25,000 crore (in addition to Rs 4.13 lakh crore given in Budget 2020-21) is being provided for capital expenditure on roads, defence, water supply, urban development and domestically produced capital equipment.

"The proposals to stimulate demand are designed to stimulate demand in a fiscally prudent way - some of them involve advancing of expenditure, with offsetting changes later - others are directly linked to increasing GDP," she said.

"We estimate that the measures announced today, for boosting consumer spending and capital expenditure, will boost demand by Rs 73,000 crore, to be spent by March 31, 2021. Given that private sector spending through LTC tax benefit would be at least Rs 28,000 crore, we estimate total demand boost due to today's measures to be more than Rs 1 lakh crore," the Minister said.

"If demand goes up based on the stimulus measures announced today, it will have an impact on those people who have been affected by COVID-19 and are desperately looking for demand to keep their business going," she added.


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