It's October and Finance Minister Nirmala Sitharaman is back with some festive cheer.
On Monday, she rolled out measures to create additional demand exceeding Rs 1 lakh crore and clothe the bare bones of the Indian economy.
Because, consumers and governments have the whiphand, the announcements gently nudge them to spend.
Sitharaman hasn't called on the full weight of the public purse yet, which is why critics fear they lack the sparkle to land a killer punch. A monklike-frugality is written all over, but as she noted, the idea isn't to 'burden consumers with inflation,' or put government on an unsustainable debt path.
That said, some believe Monday's measures are a taster of what's yet to come (stimulus-II), and just like banker's hours, since they come with a sell-by date of March 2021, rest assured that money won't be salted away and instead be spent to boost demand.
Of the anticipated Rs 1 lakh crore demand boost, the festive dole for central government employees will likely create Rs 36,000 crore, Rs 37,000 crore is from the centre's pocket, while the rest, wishful as one can be, could come from the private sector.
Foremost among them are LTC cash vouchers and festival advances for central government employees. Festival advances discontinued from the 6th pay commission will make a one-time comeback, where all employees get Rs 10,000 interest-free advance to be repaid in 10 installments. The government will spend about Rs 4,000 crore, but even though the government won't budge to pledge more, it's unclear how many will play to the whistle.
The proposed cash vouchers in lieu of leave travel concession (LTC) fare must be spent strictly on non-food, GST-rated items taxed at 12% or below.
Sitharaman reasoned that several households indulge on consumer durables during the festive season, and hence the sales pitch to divert the LTC sums on discretionary spend and in return aid the growth story creating Rs 19,000 crore worth demand and another Rs 9,000 crore even if half of the states follow suit. These are conservative estimates and the government hopes the actual amount spent will be much higher. It'll cost roughly Rs 7,500 crore to the exchequer, but this expense was already factored in and won't upset the fiscal math.
Meanwhile, as for capital expenditure (capex), it has two elements including Rs 12,000 crore special financial assistance to states and Rs 25,000 crore towards infrastructure.
Assistance to states comes with a 50-year, interest-free loan that can be used for new or old projects and also pay bills to vendors. Interestingly, these loans are over and above the states' borrowing limits and by setting an expiry date of March 2021, the Centre perhaps wants to ensure meaningful and committed spending by government departments.
On its part, the Centre enhanced capex by Rs 25,000 crore for roads, defence infrastructure, water supply, urban development, defence infrastructure and domestically produced capex. This is over and above the Rs 4.13 lakh crore earmarked towards capex for FY21 and could aid job creation and help industry, both big and small.