Finance Minister Nirmala Sitharaman in a press conference on Monday announced two schemes to stimulate demand in order to boost India’s pandemic-battered economy. While the supply constraints have somewhat eased, consumer demand still needs to be given a boost, the minister said, while announcing the schemes.

The Reserve Bank of India (RBI) said on Friday that India’s GDP will contract by 9.5% in FY21. 

Two schemes: LTC Cash Voucher scheme and Special Festival Advance Scheme, were announced by Sitharaman on Monday. 

Under the LTC Cash Voucher Scheme, the government will give cash to its employees in lieu of the LTC ticket fare component for buying items attracting 12% or more GST. These purchases will have to be made in digital mode from GST-registered outlets.

Every four years, central government employees get LTC to any destination to their choice plus one to their hometown.

Since travel is difficult to undertake during the pandemic, the government will pay the entitled fare as cash vouchers which have to be spent by March 31, 2021, she said.

Central govt payout on cash-in-lieu-for-LTC will be Rs 5,675 cr and Rs 1,900 cr for PSUs and banks.

The demand infusion because of this would be Rs 19,000 crore, and another Rs 9,000 crore if half of the states follow this guideline, the minister said.  

Under the Special Festival Advance Scheme, the government will give Rs 10,000 special festival advance all its employees as a one-time measure to stimulate demand in the economy. 

The one-time disbursement of the Special Festival Advance Scheme is expected to amount to Rs 4,000 crores, if given by all state governments, another Rs 8,000 crores are expected to be disbursed, Sitharam said.

Employees can spend this on any festival and can be availed and spent by March 31, 2021. This interest-free advance can be paid back in 10 installments, she said. 

While announcing the schemes, Sitharam said indications are that the savings of government and organized sector employees have increased. There is a need to incentivise such people to boost demand for the benefit of the less fortunate, she added. 

The centre will give an interest-free loan of Rs 12,000 crores to the states for capital projects for a period of 50 years. Out of this, Rs 1,600 crore will be given to north-eastern states and Rs 900 crore will be for Uttrakhand and Himachal Pradesh. She said Rs 7,500 crore will be for the remaining states. Rs 2,000 crore will be given to states that fulfill pre-stated reforms.

The centre will also provide Rs 25,000 crore in addition to Rs 4.13 lakh crore budgeted for roads, defence infrastructure, water supply, urban development, the FM announced. 

We estimate that the measures announced today, for boosting consumer spending and capital expenditure, will boost demand by Rs 73,000 crores, Sitharaman said.