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FM Nirmala Sitharaman announces LTC cash voucher scheme, festival advance for government employees

In the backdrop of the economic slowdown, Finance Minister Nirmala Sitharaman has announced measures of Rs 73,000 crore to stimulate consumer spending in the economy

FM Nirmala Sitharaman announces measures of Rs 73,000 crore to stimulate consumer spending before end of this Financial Year in fight against COVID-19
FM Nirmala Sitharaman announces measures of Rs 73,000 crore to stimulate consumer spending before end of this Financial Year in fight against COVID-19
  • FM Nirmala Sitharaman announces measures of Rs 73,000 crore to stimulate consumer spending

  • Indications are that savings of government and organised sector employees have increased​- Sitharaman

  • Today’s announcements by FM Nirmala Sitharaman Ji are timely moves which will boost consumer spending- PM Modi

New Delhi: Union Minister for Finance & Corporate Affairs Nirmala Sitharaman has announced measures of Rs 73,000 crore, including an LTC cash voucher scheme and festival advance for Central government employees, to stimulate consumer spending in the economy in an effort to fight the slowdown due to COVID-19 pandemic following lockdown. Union Minister of State for Finance & Corporate Affairs Anurag Singh Thakur, Finance Secretary Dr Ajay Bhushan Pandey, Department of Financial Services Secretary Debashish Panda and Department of Economic Affairs Secretary Tarun Bajaj were also present during the announcement of the stimulus package.

While announcing the demand stimulus package, Sitharaman said, “Indications are that savings of government and organised sector employees have increased and we want to incentivise such people to boost demand for the benefit of the less fortunate.” The Finance Minister further said that if demand goes up based on the stimulus measures announced today, it will have an impact on those people who have been affected by COVID-19 and are desperately looking for demand to keep their business going.

The Finance Minister stressed on the idea that today’s solution should not cause tomorrow’s problem. She said that the Government does not want to burden the common citizen with future inflation and also not put the Government debt on an unsustainable path.

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The proposals presented by the Finance Minister are designed to stimulate spending in a fiscally prudent manner as some of the proposals are for advancing or front-loading of expenditure with offsetting changes later while others are directly linked to increasing in GDP. The present announcement by Sitharaman highlights the active intervention by the government to combat economic slowdown created by COVID-19. The details are as follows: -

Consumer spending

1. Leave Travel Concession (LTC) Cash Voucher Scheme

While announcing the scheme, the Minister said, “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.”

The central government employees get LTC in a block of four years in which air or rail fare, as per pay scale/entitlement, is reimbursed and in addition, Leave encashment of 10 days (Pay + DA) is paid. But due to COVID-19, employees are not in a position to avail of LTC in the current block of 2018-21.

Therefore, the Government has decided to give cash payment in lieu of one LTC during 2018-21, in which:

  • Full payment on Leave encashment and
  • Payment of fare in 3 flat-rate slabs depending on the class of entitlement
  • Fare payment will be tax-free

An employee, opting for this scheme, will be required to buy goods or services worth three times the fare and 1 time the leave encashment before March 31, 2021.
The scheme also requires that money must be spent on goods attracting GST of 12% or more from a GST registered vendor through digital mode. The employee is required to produce GST invoice to avail the benefit.

ALSO READ: FM announces LTC cash voucher scheme, festival advance for government employees

If the central government employees opt for it, the cost will be around Rs 5,675 crore. Employees of Public Sector Banks (PSBs) and Public Sector Undertakings (PSUs) will also be allowed this facility and the estimated cost for them will be Rs 1,900 crore. The tax concession will be allowed for state government or private sector too, for employees who currently are entitled to LTC, subject to following the guidelines of the Central Government scheme. The demand infusion in the economy by the central government and Central PSE/PSB employees is estimated to be Rs 19,000 crore approx. The demand infusion by state government employees will be Rs 9,000 crore. It is expected that it will generate additional consumer demand of Rs 28,000 crore.

2. Special Festival Advance Scheme

A Special Festival Advance Scheme for non-gazetted employees, as well as for gazetted employees too, is being revived as a one-time measure to stimulate demand. All central government employees can now get an interest-free advance of Rs 10,000, to be spent by March 31, 2021, on the choice of the festival of the employee. The interest-free advance is recoverable from the employee in a maximum of 10 instalments.

The employees will get pre-loaded RuPay card of the advance value. The government will bear bank charges of the card. Disbursal of advance through RuPay card ensures digital mode of payment, resulting in tax revenue and encouraging honest businesses.

The one-time disbursement of Special Festival Advance Scheme (SFAS) is expected to amount to Rs 4,000 crore; and if the SFAS is given by all state governments, another tranche of Rs 8,000 crore is expected to be disbursed.

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Capital expenditure

Special assistance to the states:
While announcing measures related to capital expenditure, Sitharaman said that money spent on infrastructure and asset creation has a multiplier effect on the economy. It not only improves current GDP but also future GDP. The government wants to give a new thrust to the capital expenditure of both states and centre. She said that the central government is issuing a special interest-free 50-year loan to states of Rs 12,000 crore capital expenditure. The scheme consists of 3 parts.

Part - 1 of the scheme provides for:

  • Rs 200 crore each for 8 North East states (Rs 1,600 crore) and 
  • Rs 450 crore each Uttarakhand, Himachal Pradesh (Rs 900 crore)

Part - 2 of the scheme provides for:

Rs. 7,500 crore for remaining states, as per 15th Finance Commission devolution.

The Minister said that both Part 1 and Part 2 of interest-free loans given to states are to be spent by March 31, 2021, and 50 percent will be given initially, the remaining 50 percent will be given upon utilization of first 50 percent. Unutilised funds will be reallocated by the central government.

Under Part - 3 of Rs 12,000 crore interest-free loans to states, Rs 2,000 crore will be given to those states which fulfil at least 3 out of 4 reforms spelt out in Aatma Nirbhar Bharat Package (ANBP). Rs 2,000 crore is over and above other borrowing ceilings.

Following are the features of this scheme:

It can be used for new or ongoing capital projects needing funds and or settling contractors or suppliers’ bills on such projects
CAPEX to be spent by 31st March 2021
This funding will be over and above all other additional borrowing ceilings given to states
Bullet repayment after 50 years, no servicing required for 50 years

Enhanced budget provisions:

The Finance Minister said that additional budget of Rs 25,000 crore, in addition to Rs 4.13 lakh crore given in union budget 2020, is being provided for capital expenditure on roads, defence, water supply, urban development and domestically produced capital equipment.

To allow smooth conducting of government business, allocations will be made in forthcoming Revised Estimate discussions of the Ministry of Finance with concerned ministries.

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