India on Monday announced steps to stimulate consumer demand, including advance payment of a part of the wages of federal government employees during the festival season and more capital spending as it tries to bolster the pandemic-hit economy
The government will allow its employees to spend tax-exempt travel allowances on goods and services, Nirmala Sitharaman, India’s finance minister told a news briefing.
Sitharaman announced a one-time Rs 10,000 interest-free festival advance to all its officers and employees as part of plans to increase consumer spending to spur demand in the economy.
But as a one-time measure, an interest-free advance will be given to all officers and employees of the central government, she said.
This Rs 10,000 advance will come as a pre-paid rupay card, which can be availed and spent by March 31, 2021.
The repayment will be in 10 installments, she said adding that Rs 4,000 crore is likely to be spent on this
She said the government will also shore up investment by spending extra Rs 250 billion ($3.41 billion)on roads, ports and defence projects, and offering 120 billion rupees in interest-free 50-year loans to state governments for spending on infrastructure before March 31,2021.
“All these measures are likely to create an additional demand of Rs 730 billion ($9.96 billion),” Sitharaman said, adding the proposals would stimulate demand in a “fiscally prudent way.”
This will be in addition to Rs 4.13 lakh crore budgeted, she said, adding that the additional money will be for spending on roads, defence infrastructure, water supply and urban development.
Prime Minister Narendra Modi’s government, which imposed a tough lockdown to stem the spread of the coronavirus in March, is pushing ahead with a full opening to try to boost the economy ahead of the usually high-spending festival season, which runs from October to March.
The latest package would not require any extra borrowing by the federal government, Tarun Bajaj, economic affairs secretary at the Ministry of Finance, told reporters.
India’s federal government said last month it would stick to revised borrowing target of Rs 12 trillion ($163.78 billion) in the current fiscal year ending March, against an earlier estimate of Rs 7.8 trillion .
India’s total coronavirus cases have crossed 7.12 million, second only to the United States, with deaths reaching 109,150.
The Reserve Bank of India left key policy rates unchanged on Friday, while retaining an accommodative monetary stance to support an economy that is projected to contract by almost 10% in the current fiscal year.
Sitharaman also announced a Rs 12,000 crore interest-free 50-year loan to states for spending on capital projects in a bid to boost economy.
Addressing a press conference, she said, out of the Rs 12,000 crore, Rs 1,600 crore will be given to north-eastern states and Rs 900 crore will be for Uttrakhand and Himachal Pradesh.
She said Rs 7,500 crore will be for the remaining states. Rs 2,000 crore will be given to states that fulfill pre-stated reforms.
The loan will have to be spent entirely on new or ongoing capital projects, she said adding that states can settle bills of contractors and suppliers but all the amount has to be paid before March 31, 2021.
The loan is over and above borrowing ceilings of the states and the repayment will be one bullet payment after 50 years, she added.