Economy: To spur demand, Centre offers cash vouchers, festival advance

Virendra Pandit 

New Delhi: With the coronavirus pandemic showing signs of a rollback, India’s economy is expected to get a fillip in the next sixth months in a V-shaped recovery mode, beginning November, and fiscal 2020-21 may not exactly turn out as bad it many thought it could.

One of the key reasons for a steep decline in India’s Grand National Product (GDP) this fiscal year has been the lack of demand due mainly to the Covid-19-induced lockdown which halted wheels of transport, hit demand, and supply, as millions lost jobs and migrated to native places. Many panicked people, as well as the jobless, minimized buying. The work-from-home trend further eroded demand. This triggered a downward spiral of demand and supply.

It is not the essential commodities necessary for bare survival, but the shopping for non-essentials and luxury items which actually turn the wheels of a stagnant economy. Since this could not happen, the World Bank and other rating agencies projected a 9.6 percent fall in GDP.

In the past few weeks, however, the pandemic’s curve seems to be flattening out. Lockdowns are being phased out across India. Nearly 90% recoveries and reduced infection numbers have further spurred the nation’s mood to bring the halted economy back on the rails. Many migrants have also returned to their workplace, adapting to a new normal.

To take advantage of this ‘positive’ development, Finance Minister Nirmala Sitharaman, on Monday, unveiled some measures to push Central government employees’ to go out shopping and spur demand, a month before India’s biggest shopping festival of Diwali.

At a press conference, she announced two schemes to incentivize consumer spending and boost the country’s GDP as part of the Centre’s fresh economic revival push. The FM also unveiled another measure to boost capital expenditure in the states.

Accordingly, the Centre, as a part of increasing consumer spending, will provide cash vouchers in place of leave travel concession (LTC) to the employees. Also, they would be paid a special festival advance to make them shop.

“The proposals being presented are designed in a way that they can stimulate demand by front-loading/advancing some of the expenditure with some offsetting changes. Others are directly linked to an increase in the GDP,” she said.

The cash vouchers in lieu of LTC fare could be spent only on buying non-food, GST-rated items. The employees would be able to buy only those items that attract 12 percent or more goods and services tax (GST). These purchases will have to be made in digital mode from GST-registered outlets.

Every four years, Central government employees get LTC to any destination to their choice, plus one to their hometown. Since travel is difficult to undertake during the pandemic, the government will pay the entitled fare as cash vouchers which have to be spent by March 31, 2021, she said.

As they could not spend much during the pandemic, “Indications are that the 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,” Sitharaman said.

The LTC Cash Voucher Scheme is expected to generate additional consumer demand in the range of Rs 28,000 crore. “The Central government pay-out on cash-in-lieu-for-LTC will be Rs 5,675 crore, and another Rs 1,900 crore will be pay-out by Central PSUs and public sector banks,” she said.

Moreover, all Central government employees can avail of an interest-free advance of Rs 10,000 in the form of a prepaid RuPay Card. The one-time disbursement 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.

“The interest-free advance of Rs 10,000, to be spent by March 31, 2021, is to be paid back in 10 installments. The government will bear the bank charges in this regard,” Sitharaman said.

Sitharaman also announced a Rs 12,000 crore interest-free 50-year loan to states for spending on capital projects in a bid to bring economic activities back on track. Out of this, Rs 1,600 crore will be given to the north-eastern states and Rs 900 crore to Uttrakhand and Himachal Pradesh, while Rs 7,500 crore will be for the remaining states.

The remaining Rs 2,000 crore will be given to states that fulfill the pre-stated reforms, Sitharaman said.

“The loan will have to be spent entirely on new or ongoing capital projects. States can settle bills of contractors and suppliers but all the amount has to be paid before March 31, 2021,” the FM said.

Additional capital expenditure of Rs 25,000 crore would be spent by the Centre on developing roads, defence infrastructure, water supply, and urban development, Sitharaman said.

This will be in addition to Rs 4.13 lakh crore already budgeted.