In an attempt to revive the consumption-driven economy that has been hit hard by the COVID pandemic and to boost capital expenditure by states, Finance Minister Nirmala Sitharaman announced a couple of measures on Monday (October 12) that she said will boost demand by ₹73,000 crore.
She announced cash vouchers instead of leave travel concession (LTC) and special interest-free advance for festival spending by government employees.
“Indications are that savings of government and organised sector employees have increased, we want to incentivise such people to boost demand for the benefit of the less fortunate,” the finance minister said.
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Once in a block of four years, government employees are entitled to leave travel concession (LTC) on journey to anywhere in India and once or twice to their hometowns. But since COVID has made travel difficult, government employees can claim the LTC and three times the ticket fare amount in the form of cash vouchers.
Sitharaman said the cash vouchers should be spent only on non-food items that attract a GST of at least 12 per cent. Moreover, the purchase has to be made only digitally from entities that are registered under GST.
“Since the employees are not able to travel anywhere due to Covid-19, they can spend the money in buying something of their choice. But the money has to be spent on items which attract 12% or more GST,” she said.
The amount in the vouchers have to be spent by March 31, 2021, she said.
“On a conservative basis, we expect the LTC cash voucher scheme to generate additional consumer demand in the range of ₹28,000 crore,” she said. The spending by government employees will boost consumption and could help increase private spending also, Sitharam said.
The finance minister also announced a one-time interest-free special festival advance scheme, under which employees can avail of ₹10,000 as advance in the form of pre-loaded Rupay cards. The amount has to be paid back in 10 monthly instalments.
To boost capital expenditure by states, Sitharaman said the Centre will provide interest-free 50-year loans worth ₹12,000 crore.
She said ₹1,600 crore will be set aside for North East, ₹900 crore for Uttarakhand and Himachal Pradesh, and ₹7,500 crore for the remaining states. Also, ₹2,000 crore has been earmarked for states that meet at least 3 of the 4 reforms mentioned in the Atma Nirbhar Bharat package, she said. The states will have to spend the amounts by March 31,2021, she said. Initially, 50 per cent of the loan amounts will disbursed to the states. The remaining 50 per cent will be released only when the first tranche is completely utilised.
“We estimate that the measures announced today (October 12) for consumer spending and capital expenditure will boost demand by ₹73,000 crores,” Sitharaman said.