Govt Employees, States Get Rs 73,000 Crore Nudge as Centre Searches for Growth

Finance minister Nirmala Sitharaman on Monday afternoon unveiled two new plans aimed at boosting demand in the flagging Indian economy.

New Delhi: The Narendra Modi government on Monday afternoon unveiled two new plans aimed at boosting demand in the flagging Indian economy, one that nudges Central government employees to spend more this fiscal year and the other for state governments to allocate more money towards capital expenditure.

The consumer spending proposals include a new leave travel concession (LTC) cash voucher scheme and the revival of an old special festival advance programme that was abolished by the 7th pay commission.

Both programmes, along with new interest-free loans to state governments and increased capex spending by the Centre, are expected to give a Rs 73,000 crore boost to demand in the economy if implemented fully.

“There is no gain saying that the pandemic has affected the economy adversely…Supply constraints have somewhat eased but consumer demand still needs to be given a bit of a boost,” finance minister Nirmala Sitharaman said at a press conference

On the issue of nudging Indian babus to spend more, Sitharaman said: “Government and many organised sector employees have their jobs and salaries protected and some initial indications suggest savings have increased as many couldn’t spend their usual expenditure during the lockdown.”

Union finance minister Nirmala Sitharaman addresses a press conference, in New Delhi, October 12, 2020. MoS finance Anurag Thakur is also seen. Photo: PTI/Manvender Vashist

The first scheme will see the Modi government hand out cash vouchers to Central government employees this year in lieu of LTC  for the 2018-2021 period – these vouchers can be spent only on buying non-food items that attract a 12% GST rate or more.

Employees opting for this scheme will need to spend money equal to three-times the fare and one-time the leave encashment amount.

“Many of them [government employees] don’t want to [travel] because of COVID-19. Instead, what we are offering is to give the money to them based on three slabs – as per government rules and procedures – they could spend it to buy something of their choice. These are flat-rate slabs equivalent to the round ticket fare they would have spent. This must be spent on items that have 12% GST or more; for instance, you cannot use it to buy food that has 5% GST slab. You can only spend them in digital mode, no cash payments,” said the finance minister.

“We think the [scheme for the] Central government employees, if they opt for it, will cost Rs 5,675 crore. And employees of PSBs and public sector undertakings will also be allowed to participate in this and the cost for them would be Rs 1,900 crore,” Sitharaman said.

State government employees will also have the option to participate in the scheme, she added.

Festival advance scheme

The Centre is also reviving a programme that was available for Central government employees in the Sixth Pay Commission with some tweaks. The new plan will involve all Central government employees being free to avail of an interest-free advance of Rs 10,000 that can be spent anywhere.

“A prepaid Rupay card will be given to the availees as an interest-free advance for use in any festival. We are not limiting it for any one festival or GST-only shops. You can spend it anywhere you want. But you cannot withdraw it as cash. The spending will have to be done by March 31, 2021. The bank charges for loading the card will be paid by the Central government.,” Sitharaman said.

The finance minister said that the government expects consumer spending to be boosted by Rs 8,000 crore from this move, and added that Rs 4,000 crore will be disbursed by the Centre under this provision.