Finance Minister Nirmala Sitharaman on Monday announced a Rs 73,000 crore package, including advance payment of a part of wages to central government employees and cash in lieu of LTC, to stimulate consumer demand and investment in the economy damaged by the coronavirus pandemic.
As much as Rs 11,575 crore would be paid as LTC allowance and advance to central government and PSU employees on the condition that they spend on non-essential goods before March 31, she said.
States would separately be eligible to get Rs 12,000 crore in 50-year interest-free loans for capital expenditure, while the Union government will spend an additional Rs 2,500 crore toward capital expenditure on roads, defence infrastructure, water supply and urban development.
"All these measures are likely to create an additional demand of Rs 73,000 crore," Sitharaman said, adding the proposals would stimulate demand in a "fiscally prudent way."
The government, which had in May announced a Rs 20 lakh crore 'Aatmanirbhar Bharat' stimulus package, is pushing ahead with a full opening to try to boost the economy ahead of the usually high-spending festival season.
A tough lockdown imposed to stem the spread of coronavirus had resulted in the GDP contracting by a record 23.9 per cent during April-June. Analysts have predicted that the economy may be headed for its worst contraction this fiscal.
"Measures by the government to stimulate demand must not burden the common citizen with future inflation," Sitharaman said. "We also kept it in mind that it must not put government debt on an unsustainable path. Today's solution must not cause tomorrow's problem."
At a news conference, she said the government will give its employees income tax-exempt cash vouchers in lieu of their entitled travel allowances this year.
This cash will have to be spent on buying goods that attract 12 per cent or more GST — a condition which eliminates the possibility of the cash being spent on essential items.
Central public sector enterprises and banks will also follow the cue and give cash in place of leave travel concession (LTC) as travelling during the pandemic is near to impossible.
Additionally, the government will as a one-time measure give Rs 10,000 salary loan to all its officers and employees as festival advance.
These two measures are "expected to create a consumer demand of about Rs 28,000 crore", she said.
Together with the loan to states and additional capital spending, Sitharaman said "very rough estimate is that potential private-sector spending through LTC tax benefit will be at least equal to the government employee-led demand of Rs 28,000 crore and the total additional demand estimated to exceed Rs 1 lakh crore."
Sitharaman said the central government employees get LTC in a block of four years (one to anywhere in India and one to hometown; or two for the hometown). Air or rail fare, as per scale/entitlement, is reimbursed and in addition, leave encashment of 10 days (pay plus dearness allowance) is paid.
Due to COVID-19, employees are not in a position to avail LTC.
In lieu of one LTC, a cash payment will be made — full payment on leave encashment and payment of a fare in three flat-rate slabs depending on the class of entitlement. Fare payment will be tax-free.
An employee opting for this scheme will be required to buy goods/services worth three-times the fare and one-time the leave encashment before March 31, 2021, she said, adding money must be spent on goods attracting GST of 12 per cent or more from a GST-registered vendor and through digital mode.
If central government employees opt for it, the cost will be around Rs 5,675 crore. Employees of public sector banks and PSUs will also be allowed this facility and estimated cost for them will be Rs 1,900 crore.
The tax concession will be allowed for state government/private sector too, for employees who currently are entitled to LTC, subject to following the guidelines of the central government scheme.
Demand infusion in the economy by the central government and central PSE/PSB employees is estimated to be Rs 19,000 crore. Demand infusion by state government employees will be Rs 9,000 crore.
She said festival advance along with other similar advances were abolished on the recommendations of the 7th Pay Commission.
It is proposed to restore the festival advance with a one-time interest-free advance of Rs 10,000 to be availed by March 31. The amount is supposed to be recovered in a maximum of 10 installments.
The outgo under the head is expected to be Rs 4,000 crore, she said adding if 50 per cent adoption by states is taken into account, another Rs 4,000 crore festival advances would be disbursed.
Employees will get a pre-loaded Rupay card of the advance value. The government will bear bank charges in this regard.
The finance minister said the Rs 25,000 crore capital spending will be over and above the Rs 4.13 lakh crore capital expenditure announced in the Budget for 2020-21.
Out of the Rs 12,000 crore interest-free to states, Rs 1,600 crore will be for the North-Eastern states and Rs 900 crore for Uttarakhand and Himachal Pradesh.
Other states will get Rs 7,500 crore and the remaining Rs 2,000 crore will be given to states that implement pre-agreed reforms.