IN TIMES OF COVID, BOOST TO CONSUMPTION DEMAND AND CAPITAL EXPENDITURE
WHY IN NEWS?
- Recently, the government has announced a twin set of measures to boost consumption demand and capital expenditure (Capex), which are estimated to result in quick spending of more than Rs. 1 lakh crore by March 2021.
- These measures are the Leave Travel Concession (LTC) voucher scheme and a festival advance scheme. Also, measures have been announced to step up Capex by the Centre and the states.
AIM:
- Supply constraints in the economy have eased over recent months, but consumer demand remained affected and these measures aim at advancing consumer spending and Capex.
- Capex steps are “directly linked to an increase in economic output given their high multiplier effect”.
- The earlier announced Atmanirbhar Bharat package addressed the requirement of essential goods for needy sections of the society and now these measures aim at promoting consumption of high-value items by those employees whose salaries and jobs have not been affected by Covid-19 pandemic.
- With the participation of the private sector, these will stimulate growth in the economy by advancing the consumption of non-essential, relatively high-value goods and services in the economy.
BENEFITS TO ECONOMY:
- The government expects a demand generation of Rs. 28,000 crore (Rs. 19,000 crore from central government employees and the rest from states) in the economy.
- While GST collections have been severely impacted in the first half of the fiscal due to Covid-19 pandemic, a consumption boost will lift GST collections in the second half of the year as the scheme calls for expenditure to be done till 31st March 2021.
- If private-sector employees also participate, it may lead to a significant jump in overall consumption and rise in GST collections.
- Since most employees have not been able to travel after the pandemic, the shifting of the LTC benefit is expected to generate demand elsewhere.
FESTIVAL ADVANCE:
- Festival advance, which was abolished in line with recommendations of the 7th Pay Commission, has been restored for one time till 31st March 2021.
- All central government employees will get an interest-free advance of Rs. 10,000 that will be recovered in 10 instalments. It will be given in the form of a pre-loaded RuPay card of the advance value.
- The government expects to disburse Rs. 4,000 crore under the scheme by 31st March 2021 and if all states provide similar advances, another Rs. 8,000 crore is likely to be disbursed.
- This is expected to generate consumer demand ahead of festivals like Diwali.
OTHER MEASURES TO BOOST CAPITAL EXPENDITURE:
- An additional budget of Rs 25,000 crore for Capex on roads, defence infrastructure, water supply, urban development, and domestically produced capital equipment. This is expected to come through re-allocation of resources.
- Special assistance will be provided to states in the form of interest-free 50-year loans of Rs. 12,000 crore, which can be used only for Capex purposes, with certain conditions.