Finance Minister Nirmala Sitharaman on Monday announced additional allocation of £3.7billion towards capital expenditure, and put money into the pockets of government employees ahead of the festival season, hoping to trigger demand of £10 billion in her latest bid to revive economic activity.
The much-awaited “stimulus”, however, did not contain measures to address the lack of demand in sectors such as hospitality and tourism that have been hit hard by Coronavirus with demand remaining tepid even after opening.
PM Narendra Modi had held consultations with his top economic advisors as far back as July on boosting spending on core sector projects in a bid to spur demand for cement, steel and other inputs, which culminated in Monday’s announcements.
Centre hopes states, pvt cos too will offer LTA scheme
The additional capex and leave travel concession and festival loan benefits for central government employees come with riders, and the impact will depend on how many emplyees opt for this scheme. For instance, the £2.5 billion allocation for additional capex by March-end will be made for defence infrastructure, roads, water supply and urban development, provided the equipment is manufactured locally.
There was another £1.2 billion support to the states, which is to be provided in the form of interest-free loans for 50 years. But the rider is that the money has to be spent by March and there is a £ 200 million allocation for states which meet three of the reform criteria announced earlier such as power sector reforms or one-nation one ration card related initiatives.
Similarly, those availing of the LTC benefit need to spend three times their entitlement in purchasing cars, fridge, mixers or vacuum cleaners. The measures marked the government's fresh efforts to revive sentiment and give some push to the economy which has been battered by the Covid-19 induced lockdown and growth has plunged nearly 24% in the June quarter and full year GDP contraction is estmated at 9.5% in the current fiscal year.
Along with the conditions, Sitharaman has placed a lot of reliance on state governments and the private sector taking a cue from the Centre to and come up with similar schemes. Using “conservative estimates”, the Centre pegged the cost of the LTC cash voucher scheme at around Rs 5,675 crore with another Rs 1,900 crore coming from state-run banks and companies.
