NEW DELHI: Though Finance Minister Nirmala Sitharaman has said that the fresh set of stimulus measures is expected to generate additional demand of around Rs.1 lakh crore, experts remain wary of the "conditions apply" tag.
The incentive schemes for central government employees is likely to create demand to the tune of Rs.36,000 crore - split between Rs.28,000 crore from the leave travel concession (LTC) voucher scheme and Rs.8,000 crore from a special festival advance scheme to be spent before March 31, 2021, according to the Centre.
While central government employees are estimated to contribute Rs.19,000 crore, there could be an additional Rs. 9,000 crore-worth demand infusion even if half of the states follow suit.
Under the LTC scheme, an employee can avail cash payment in lieu of leave encashment as well as the fare depending on the entitlement of the employee. Further, this amount can be tax free if the employee spends three times the amount he avails on non-food items and services that attract 12% GST or more as well as their entire leave encashment portion.
"For instance, if a person is eligible for Rs.20,000 as LTC then he may have to spend at least Rs.70,000 (Rs.20,000 x 3 + Rs 10,000) to claim the LTC amount as tax free. Tax on Rs.20,000 works out to around Rs.6,240 assuming the highest tax slab," explains Archit Gupta, founder and chief executive of Clear Tax.
Increase in consumer expenditure will depend upon how many employees avail the scheme given that the conditions are being imposed, said Rucha Ranadive, economist at Care Ratings. "There is no fresh outlay from the point of view of the government as employees get to use their entitlements in advance. This is not like a cash transfer to the employees outside the salary which was being paid. Employees may not use both the options in a single season," she noted.
SBI group chief economic adviser Soumya Kanti Ghosh estimates only around 10-15 per cent employees would use the LTC Scheme. "The scheme is highly unlikely to work unless the government decides to pay the GST component also over and above the fare entitlement amount," he pointed out.
Since LTC covers not just the employee but the dependent family members, he noted, that the draw down on personal income will also be huge. Ghosh also said that the proposal ignores the vital fact that the rise in savings is due to cutback of discretionary consumption in many groups, and the group targeted by the proposal has a higher marginal propensity to save and any extra savings is more likely to be not consumed.
The private sector response will be critical. While many argue that government workers are the least impacted in terms of salary loss, it is to be noted that 1.9 crore salaried people have lost jobs since the pandemic broke out.
"Given the current job market situation, employees would have to evaluate spending thrice the amount in order to claim the benefit and this could pose challenges," said Sudhakar Sethuraman, Partner, Deloitte India.
However, he added that an official notification on the scheme from tax authorities for private sector employees is still awaited. Ranadive believes that it is unlikely that the scheme will be extended to employees given the ongoing stress level in the private sector.