Finance Minister announces schemes to boost consumer demand and capital expenditure

Nirmala Sitharaman holds a press conference hours before the GST meeting to discuss schemes that would boost total demand and capital expenditure.


Finance Minister Nirmala Sitharaman has introduced two proposals to boost total demand in the economy by over Rs. 1 lakh crore on October 12, 2020. 

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

The Finance Minister said that these stimulus measures will have an impact on people who have been affected by Covid-19 and are desperately trying to keep their business going. The press conference came hours before the third round of Goods and Services Tax (GST) Council meeting that would discuss the problem of compensating states for the Rs. 2.35 lakh crore shortfall in their revenue share from the indirect tax of 2020-21.

The first proposal that deals with consumer spending looks into the Leave Travel Concession (LTC) Cash Voucher Scheme and the Special Festival Advance Scheme.

The Finance Minister proposed that under the LTC Cash Voucher Scheme, government employees can choose cash amounting to leave encashment and three times ticket fare, to buy items that attract GST of 12 percent or more. Only digital transactions will be allowed and a 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,” she said.

This scheme would cost an estimate of Rs. 5,675 crore for the Central government and an estimated cost of Rs.1,900 crore for Public Sector Banks and Public Sector Undertakings. She also said that state government and private sector can also avail these tax concessions

“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 Scheme to generate additional consumer demand in the range of 28,000 crore,” said Sitharaman.

Meanwhile, the Special Festival Advance Scheme would be a one-time measure revived for non-gazetted and gazetted government employees. All central government employees would receive an interest-free advance of Rs. 10,000 as 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,” she said.

Similarly, she proposed two measures to boost Capital Expenditure for the Centre and states and improve the country’s GDP.

Sitharaman recommended a special interest-free 50-year loan to states, for Rs. 12,000 crore capital expenditure with Rs. 200 crore each for the right Northeast states, Rs. 450 crore each for Uttarakhand, Himachal Pradesh and Rs. 7,500 crore for others, as per the share of Finance Commission’s devolution. These loans will have to be spent by March 31, 2021 with 50 percent given initially and the remaining amount upon its utilization.

“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,” she said.

Moreover, a budget of Rs. 25,000 crore in addition to Rs. 4.13 lakh crore given in Budget 2020-’21, would be provided to the Centre for roads, defence, water supply, urban development and domestically produced capital equipment.


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