New Delhi: The Union finance ministry Monday announced a host of measures to boost consumer spending, including cash vouchers in lieu of leave travel allowance as well as festival advance for government employees.
The government is hopeful that discretionary spending on goods like refrigerators, television, heaters and grinders could see a pick-up in the coming months.
It also announced its intent to push capital expenditure through interest-free loans to states, as well as higher central government expenditure in certain fields.
Through these measures, there could be an estimated Rs 1 lakh crore boost to consumer spending, but in a fiscally prudent way, Finance Minister Nirmala Sitharaman said at a press conference.
But at the same time, the government does not expect any further increase in its market borrowings, indicating that there is no fiscal impact.
Also read: Indians seen curbing spending as they expect inflation to stay high over next year
Direct demand-boosting measures
The government announced cash vouchers in lieu of leave travel allowance for the block years of 2018-2021. This means that central government employees, public sector bank employees as well as those working in public sector undertakings will be made cash payments based on the deemed cost of travel (air or rail) fares as part of their leave travel concession. These will be exempt from tax.
Employees, in turn, have to buy goods three times the fare amount before 31 March 2021. The purchase, to be made online with an invoice, has to be of items that attract at least 12 per cent goods and services tax or more.
State governments and the private sector can also extend this scheme to their employees and avail the tax benefits, Sitharaman said, adding the items under these GST slabs are what are brought by consumers during the festive season.
Demand infusion through this measure alone is estimated at Rs 56,000 crore.
“Government employees and organised sector workers have escaped the economic effects of the pandemic. Their salaries are protected and savings have increased. They need to be incentivised to spend,” Sitharaman said.
The finance ministry also brought back the special festival advance scheme as an one-time measure. Central government employees will get an interest-free advance of Rs 10,000, to be spent up to 31 March. The money will be disbursed through a Rupay card, so that it is spent and employees cannot save up the cash.
The central government expects a Rs 4,000 crore demand boost from this measure, and another Rs 4,000 crore if state governments also offer this scheme.
Economic Affairs Secretary Tarun Bajaj stressed that the estimates of demand generation are “conservative”.
“We have assumed that only one-fourth of the central government employees will be claiming LTC. And also that only 50 per cent of the states will replicate the scheme,” Bajaj said.
Capital expenditure
In addition, the government also announced a 50-year interest-free advance to states, amounting to Rs 12,000 crore, for capital expenditure, with all spending to be undertaken by 31 March.
It also announced an additional capital expenditure of Rs 25,000 crore on roads, defence infrastructure, water supply, urban development, and defence infrastructure domestically produced capital equipment in the current fiscal.
Also read: Consumers’ confidence hits new low, but they are hopeful about next year, RBI survey shows
Negative response
The finance minister’s announcements may be good news for consumer durable companies, but tourism and hospitality associations are up in arms against the government’s decision.
The Federation of Associations in Indian Tourism & Hospitality expressed its disappointment in a statement, pointing out that the government’s decision to redirect the employees’ LTC money towards consumer goods would dry up funds for the travel sector.
“Coming on the back of a prolonged lockdown, the Indian travel and tourism industry was looking at festive season holidays (to) boost travel demand when people look to travel to their home state,” it said, adding that the move would “send a vote of no confidence to the tourism travel & hospitality industry which was looking to get back on its feet after ‘Unlock’”.
Also read: Govt steps to boost consumer spending to have ‘minimal fiscal impact’, say economists
(This report has been updated with the tourism and hospitality industry’s response)