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Finance Minister Nirmala Sitharaman unveiled new proposals to stimulate demand within the financial system within the wake of the coronavirus pandemic.
Addressing a press convention, Ms. Sitharaman stated that she has broadly categorized the proposals into two completely different compartments — client spending and capital expenditure.
She stated: “There is no gain saying that the pandemic has affected the economy adversely. The needs of the weaker and poor sections have been addressed somewhat in the various packages announced so far. Supply constraints have somewhat eased but consumer demand still needs to be given a bit of a boost. The proposals presented today are defined in such a way — by frontloading some expenditure or advancing some expenditure with some offsetting charges later. The others are directly linked to an increase in the GDP.”
Consumer spending proposals
The Finance Minister stated that the buyer spending proposals embody a LTC money vouchers scheme and a particular competition advance scheme. The LTC Cash Vouchers scheme is principally targetted to workers within the authorities and different organised sectors.
The Minister described the scheme as follows: “Government and many organised sector employees have their jobs and salaries protected and some initial indications suggest savings have increased as many couldn’t spend their usual expenditure during the lockdown.”
She continued: “Central government employees, in a block of four years — between 2017-18 and 2020-21 — employees would have normally availed of one leave travel concession for any destination of their choice plus one visit to their hometown. If they didn’t choose leave travel to one destination of their choice, they would usually go twice to their native village. This would mean air or rail fare as per their pay scale is reimbursed to them. In addition, they also get ten days of leave encashment, which they pay tax on. The travel fare is tax exempt.”
In the new scheme, all this stays the identical, however they’ll embody journey now, stated Ms. Sitharaman. “Many of them don’t want to because of COVID-19. Instead, what we are offering is to give the money to them based on three slabs — as per government rules and procedures — they could spend it to buy something of their choice. These are flat rate slabs equivalent to the round ticket fare they would have spent. This must be spent on items that have 12% GST or more; for instance, you cannot use it to buy food that has 5% GST slab. You can only spend them in digital mode only, no cash payments,” defined the FM.
“You will also have to buy only from GST-registered sellers so a GST invoice would be required on the basis of which they will be reimbursed. This spending has to be completed by March 31, 2021,” she stated.
This, the Finance Minister stated, is a approach to incentivise these whose jobs haven’t been affected due to the pandemic to contribute to revival of demand for the good thing about the much less lucky.
Three instances the quantity equal to the return air/rail fare would have to be spent to qualify for this.
If the Central authorities workers go for it, it might price ₹5,675 crore. Public sector workers may also avail this, which might price ₹1,900 crore that they might have gotten as LTC anyway.
The Minister added that the tax concessions can be found for the State governments and the non-public sector corporations too. “So if they choose to give such things to their employees, they will also get the same benefit that central employees would get. According to our estimates, the demand infusion into the economy from the Centre and PSUs would be ₹19,000 crore. If 50% of States join in this, this could spur further demand of ₹9,000 crore. These are conservative estimates,” stated Ms. Sitharaman.
“States have their own LTC rules and they can come up with variations in the scheme. So additional consumer demand generated, we expect, would be in the range of ₹28,000 crore,” she stated.
Special Festival Advance Scheme
The second proposal to spur client spending is the Special Festival Advance Scheme, stated the Finance Minister.
“Till the Sixth Pay Commission, there was a festival advance scheme in which the highest level of advance was was ₹4,500 per non-gazetted officers. However, there was no such scheme in the Seventh Pay Commission. We are now reviving it as a one-time affair,” stated Ms. Sitharaman.
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