The central government announced on Monday a ₹Demand for Rs 73 billion pushes the economy ahead of the holiday season, following the lead of the Reserve Bank of India (RBI), which tried to support an economic recovery in its October monetary policy.
While measures to boost consumer spending, as well as capital spending, are modest and designed to stimulate demand in a fiscally prudent manner, the announcement highlights the government’s recognition that the virus-stricken economy needs more. support to foster a lasting recovery.
“Government measures to stimulate demand must not burden the common citizen with future inflation and must not put government debt on an unsustainable path. Today’s solution should not cause tomorrow’s problem, “said Finance Minister Nirmala Sitharaman, explaining the government’s philosophy behind Monday’s measures.
On Friday, the RBI announced a series of measures to reduce borrowing costs to revive the economy without cutting policy rates, and also admitted for the first time that the economy will contract 9.5% in this fiscal year with a slight expansion of the economic activity in the March quarter. .
The economy contracted 23.9% in the June quarter when the government imposed a strict lockdown to contain the spread of the covid pandemic.
Government announcements to boost consumer demand, such as the Travel Concession Cash Voucher (LTC) scheme ₹5,675 million rupees) and a special festival advance program ( ₹4 billion rupees) are mostly early distribution expenses with compensatory changes later that will directly benefit more than 11 million central government employees.
Central government employees who have not used LTC in the last four years, including fiscal year 21, can use the scheme if they agree to digitally spend three times the airfare or train and the total amount of the total license charge before the March 31 on purchases that attract a minimum 12% tax on goods and services (GST).
Under the special festival advance program, an interest-free loan of € 10,000 will be offered to all central government employees as a one-time service that will be recovered in up to ten installments.
The Center is also encouraging state governments and private organizations to provide similar facilities to their employees.
Sitharaman suggested that the government has targeted this well-off category of central government employees to boost demand as they have escaped the adverse economic effects of the pandemic with their salaries more or less protected and savings increased.
“They must be encouraged to contribute to the reactivation of demand for the benefit of the less fortunate,” said Sitharaman.
DK Srivastava, Senior Policy Advisor at EY India, said these limited direct spending commitments can boost private spending, as government employees have been incentivized to spend even though the scheme is riddled with excessive conditionality.
“Although this round of stimulus is quite limited in scope, another boost to demand cannot be ruled out, perhaps in the fourth quarter of fiscal year 21, when the economy has completely come out of lockdowns and has begun to gather momentum,” he added. .
To boost spending on capital expenditures, which has a multiplier effect on growth, Sitharaman announced an additional Rs 25 billion spending by the center on roads, defense infrastructure, water supply, urban development and capital goods from National Production.
For states, Sitharaman announced a 50-year interest-free loan of 12 billion rupees for capital expenditures in fiscal year 21, including 2 billion rupees for those states that could meet three of the four reforms under the package. Atmanirbhar: a ration card of a nation; Electricity sector, urban local body and facility to carry out commercial reforms.
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