Nirmala Sitharaman Press Conference Highlights: FM Says Stimulus Schemes To Boost Demand By Rs 73,000 Crore

Devendra Pant, Chief Economist, India Ratings

• The demand stimulus announced, if realised fully, is unlikely to bring a major change in the economy to boost demand.
  
  For states, The announcements are unlikely to spur capex but the states could use the funds on existing projects and to settle pending bills.
  

Radhika Rao, Economist, DBS Bank

• Today’s announcements carry a prudent intent to boost consumption, whilst also being spending-lite so not to put additional burden on the exchequer.
• In addition to government employees, the boost to demand can be more material if the private sector also takes cue and mirrors some of the benefits announced by the Finance Ministry.

Sameer Narang, Chief Economist, Bank of Baroda

• The amount of the stimulus remains low but the announcements are nevertheless a step in the right direction and will bring some benefits.
• The announcements for government employees will lead to front loading of some of the expenditure and will translate into some spending.

Rajni Thakur, Economist, RBL Bank

• While the markets are more concerned about where the money comes from, today’s announcements are unlikely to impact the central governments balance sheets by much.
• The stimulus is too small and unlikely to have an impact of spending but funding for states could push some projects into the pipelines.

• The Finance Ministry expects additional demand boost of Rs 36,000 crore -- Rs 28,000 from LTC voucher scheme and Rs 8,000 from festival advance scheme.
• It also expects Rs 37,000 crore additional central and state capital expenditure.

• Rs 25,000 crore of capital expenditure budget to be provided over an above the Rs 4.13 lakh crore allotted in the annual budget.
• To be spent on roads, defence infrastructure, water supply, urban development, defence infrastructure and domestically produced capital equipment.
• Allocations will be made int he forthcoming revised estimate discussions of Ministry of Finance with concerned ministries.

• Rs 12,000 crore in special interest free 50-year loans to states.
• Rs 2,500 crore to go to North East, Uttarakhand and Himachal Pradesh
• Rs 7,500 crore to go to other states in proportion to Finance Commission devolution formula
• Rs 2,000 crore goes to states which meet some of the criteria set out by the central government earlier.
• 50% of the amount to be given initially, balance after the first installments.
• Money has to be spent before March 31, 2021; can be used to settle supplier bills
• This money will be over and above the borrowing limits

“We want to now give a new thrust for the capital expenditure, both for the states and the center”, Sitharaman said, pointing out that capital expenditure has a higher multiplier effect and more sustainable debt in the longterm.

Festival advance was given to employees till 6th Pay Commission recommendations were in implementation. Now, festival advance is being revived as a one-time affair, and it will now be available for all employees, the finance minister said.

• Interest free advance of Rs 10,000 will be given to all central govt employees which will have to be repaid in 10 installments
• This will be given as a prepaid Rupay card up to March 31, 2021
• Cannot be drawn as cash from an ATM but can be spent anywhere.
• Rs 4,000 crore expected to be disbursed.
• If given by all state governments, another Rs 8,000 crore is likely to be disbursed. Assuming 50% adoption by states, the estimate is another Rs 4,000 crore.

The Finance Ministry announced a LTC cash voucher scheme to boost demand using the increased savings for government employees who have not spent as much as they usually do, during the pandemic, Sitharaman said.

• Money may be given in lieu of Leave Travel Concession for 2018-21 period
• Full payment on leave encashment and payment of fare in three-flat rate slabs
• Employee opting for this scheme will need to spend money three-times the fare and one-time the leave encashment amount should be spent.
• To be spent on items where 12% or more GST imposed.
• Spending to do be done via digital means and only on GST registered businesses.
• Spending should happen before March 31, 2021.
• GST invoice will be required to be produced.

“We think 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.

Demand infusion in the economy by central government and PSE/PSB employees is estimated to be Rs 19,000 crore approximately. Demand infusion by state government employees will be Rs 9,000 crore.

The factor that makes the schemes attractive is that employees' LTC benefit will lapse and they can use the money to spend ahead of the festive season, she said.

There is no gain in saying that the pandemic has affected the economy, Finance Minister Nirmala Sitharaman said, opening the press address. The ministry has come up with “proposals”to stimulate demand in the economy first via consumer spending and then by capital expenditure, she said.

“The proposals have been designed to stimulate demand in a fiscally prudent way by front loading some expenditure,” she said.

Finance Minister Nirmala Sitharaman is set to address the media at 12:30 p.m. on “economic issues”, at a time when the country’s economy is struggling to recuperate from the crisis precipitated by the Covid-19 outbreak.

The conference will be held at the National Media Centre in New Delhi on Oct. 12.

Sitharaman will hold another press conference later in the day after heading the 43rd Goods and Services Tax meeting via video conferencing.

India’s gross domestic product contracted nearly by a quarter in the quarter ended June as the economy was shut for over two months as the virus infected lakhs of people and claimed the lives of thousands. The country is now headed for a rare annual contraction for the first time in over a decade. The Reserve Bank of India expects growth to fall 9.5% for the financial year.