Centre unveils plan to boost demand ahead of festive season; drop in the ocean, say economists

NEW DELHI: India unveiled a long-awaited stimulus programme ahead of the festive season that’s expected to give the struggling economy a boost of as much as Rs 1 lakh crore, the finance ministry said. The package aims to lift demand for consumer goods by offering festival loans to central government employees and promises additional capital spending and interest free loans to states. Staff can also use their leave travel allowance to pay for consumer goods.

Economists see marginal impact

As part of the “fiscally prudent proposals to stimulate demand in the economy” announced by finance minister Nirmala Sitharaman on Monday, the government will allocate Rs 25,000 crore over and above the Rs 4.13 lakh provided in the FY21 budget for capital expenditure-on roads, defence, water supply and urban development. It will also offer states Rs 12,000 crore in interest-free, 50-year loans for such spending. The BSE Sensex ended marginally higher, surrendering most of its opening gains, as economists said the measures will only have marginal impact.

Central government and public sector employees can use their leave travel concession (LTC) entitlement for the purchase of consumer goods, which through the multiplier effect is expected to create demand worth Rs 19,000 crore, the finance ministry said. The “LTC cash voucher scheme” is also open to states and the private sector, which the government estimates will add another Rs 9,000 crore and Rs 28,000 crore, respectively, to consumer goods demand.

“Given that private sector spending through LTC tax benefit would be at least Rs 28,000 crore, we estimate total demand boost due to today’s measures to be more than Rs 1 lakh crore,” Sitharaman said, outlining the measures. There is no additional borrowing on account of these measures, which has been budgeted in the Rs 12 lakh crore borrowing for FY21, economic affairs secretary Tarun Bajaj said.


The total direct allocation by the Centre is about Rs 47,000 crore. The private sector is expected to chip in with about Rs 28,000 crore while the balance of about Rs 26,000 crore is expected from the states and public sector companies.
The government restored festival advances as a one-time option and is offering Rs 10,000 in loans to central government employees, which is expected to add another Rs 4,000 crore to demand. These demand-boosting measures are timebound and end on March 31, 2021.

The LTC voucher scheme will cost the government Rs 5,675 crore while the interest-free loan will add another Rs 4,000 crore.

India’s economy is likely to contract 9.5% in FY21, according to the Reserve Bank of India. Economists and industry have called for more government spending to support demand.

“In the best-case scenario, this along with the multipliers would make a one percentage point difference to GDP,” said Abheek Barua, chief economist at HDFC Bank. While consumer spending will be largely on electronics, TVs and two-wheelers, demand may not percolate to other sectors, he said.

ICRA principal economist Aditi Nayar said the impact could be shortlived.

“We anticipate that the LTC and festival advance schemes will result in a temporary boost to consumer sentiment and economic activity, with a sharper pick-up in festive season sales that would subsequently fizzle out,” she said.

The view was echoed by Sonal Varma of Nomura.

“The total fiscal impact of the measures announced is likely to be Rs 410 billion (0.2% of GDP) in FY21, which is small and reflects the government’s prioritisation of fiscal prudence,” Varma said in a note. “Overall, the amount of demand stimulus is underwhelming.”

The Confederation of Indian Industry (CII) lobby group welcomed the two-pronged strategy ahead of the festive season.

“The measures will also be a significant feel-good factor for the people who have been going through some tough and challenging times due to the pandemic,” said CII director general Chandrajit Banerjee.

The government had announced a Rs 20 lakh crore Atmanirbhar Bharat (self-reliant India) stimulus programme in May. The total budget support was about 1% of GDP or about Rs 2 lakh crore.

Source link

What do you think?

Written by admin


Leave a Reply

Your email address will not be published. Required fields are marked *



BritBox is now FREE for some broadband, TV and phone customers, are YOU one of them?

Retail spending goes up 12 percent in September, driven by strong revival in rural India