NO BIG BANG STIMULUS

about 11 months ago
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The market was listless, up some 80-odd points, kind of waiting in the wings till the FM started talking. The moment she said that she was presenting a stimulus to give impetus to demand via consumer spending and capital expenditure, the BSE shot up by 197 points and then continued to remain ambivalent as the very complex sounding LTC scheme was unwound. Then the very grandiose sounding Special Festival Advance Scheme came in.

Both these ‘schemes’ were to urge consumers to spend. This was a thought in the right direction but under the current circumstances seemed too less, too late. Giving benefits and tying to up spending was good thinking; if given away as cash, it would have been either saved up or used for buying essentials only, which in turn would not have helped nudge consumer spending for non-essential items. But what they utlimately gave also was no big deal.

That led to the market remaining vigilant and kinda confused but still waiting, holding on to the green. But once the capital expenditure spend unfolded, the market fell into the red but not exactly crash, just about tepid.

The FM expects these measures announced today to generate demand worth Rs.73,000 crore. But the BIG question is – will it really?

The Special Festive Advance is just like taking an advance on your salary; it is not over and above the earning so how this can be termed as a ‘stimulus’ is questionable. The two ‘schemes’ were for PSU employees who as such are not facing any job security and salary losses. But what about the huge amount of people in the private sector who are actually suffering the most? There is nothing really for them.

But the scheme given to the states is a good one because if nothing else, some of the supplier bills will be cleared.  Yet, in the bigger picture – if you look at the need of Rs.8 lakh crore, the Rs.12,000 crore of which Rs.2500 crore goes to specific states, it will help clear just a very small portion of the bills.

This is no BIG BANG stimulus which the market was pinning all its hopes on. Lets keep the hope alive that as and when the situation unfolds, the Govt does come up with more meaningful stimulus. Well, realistically speaking anything more looks pretty remote; its better to accept this truth and look ahead.

LTC cash voucher scheme

  • Govt employees can choose to receive cash amounting to the 10-day leave encashment
  • Payment of fare in three flat rate slabs depending on their class of entitlement will be given to employee
  • This will be equivalent to three times ticket fare and one-time the LTC, to buy something – the caveat here – whatever they opt, the item has to necessarily have a GST of 12% or more.
  • Only digital transactions to be allowed and GST invoice to be produced.
  • Tax concessions for LTC tickets available for employees of state govt and private sector also.
  • This benefit needs to be availed before 31st March 2021.
  • This scheme is expected to kick-up consumption worth Rs.28,000 crore.

Special Festival Advance Scheme

  • This is more like a special 7th Pay Commission but not a give-away, more like a loan.
  • All central govt employees will get Rs.10,000 advance – this has to be repaid in 10 installments but will be interest free.
  • This money will not be given as cash but through prepaid Rupay card and can be spent anywhere.
  • This is to be spent by March 31, 2021.
  • Govt expects this scheme to generate demand worth Rs.8000 crore

Demand boost via Capital Expenditure for States

  • A special interest-free 50-year loan to states worth Rs.12,000 crore
  • This will be will be over and above the borrowing limits
  • 50% of the amount to be given upfront and balance after first installment
  • Of this Rs.12,000 crore, Rs.2500 crore earmarked for NE, Uttarakhand and Himachal.
  • Rs.7500 crore to be availed by other states in proportion to Finance Commission devolution formula
  • Balance Rs.2000 crore to states which fulfill some criteria set out by the Central Govt
  • The money has to be spent before 31st March 2021.
  • Money availed can also be used to settle supplier bills
  • The money can be used for new as well as ongoing project

Increase in Capital Expenditure Budget

  • Additional budget of Rs 25,000 crore, which is in addition to Rs 4.13 lakh crore given in Budget 2020
  • This is for spend on roads, defence, water supply, urban development and domestically produced capital equipment.

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