17:22 GMT19 October 2020
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    In its latest economic stimulus package, the Indian government has announced a 50-year interest-free loan to state governments, capital expenditure on infrastructure, and a festive advance to government employees. In May, Prime Minister Narendra Modi announced a $266 billion stimulus package to bail the economy out of the COVID-19 blues.

    In a move aimed at stoking consumption in the country's economy, Indian Finance Minister Nirmala Sitharaman has doled out festive offers to government employees.

    The idea was to provide cash benefits worth $1.58 billion to the 3.5 million-strong central government workforce, who, in turn, will spend the amount during the upcoming festive season, thereby providing a boost to the Indian economy. 

    The festive dole out to government staff has been provided under two schemes.

    The first is a cash payment in lieu of Leave Travel Concession (LTC), which remains unutilised on account of travel restrictions due to the COVID-19 pandemic. 

    The second is a festive advance in the form of a pre-loaded card, with a credit limit of INR 10,000 ($137). It will be provided to central government employees, who will have to utilise the limit by 31 March.

    The Indian Finance Ministry says the schemes will cost the Indian government $1.58 billion.  

    Both of the schemes, however, have conditions and a section of analysts Sputnik talked to opined that it is the fine print in the schemes that might dissuade government employees from taking advantage of them.

    Ved Jain, a former president of the Institute of Chartered Accountants of India, opined that the Leave Travel Concession (LTC) scheme is not an attractive venture, saying: "Just the fact that a scheme has come, it will not drive a government employee to start spending money", only for the sake of utilising it.

    He also said such a scheme would delight those who already had plans to purchase something expensive during the festive season. "If someone had been planning to purchase, for instance, a four-wheeler or something else, the scheme would be handy for them", Jain told Sputnik.  

    The LTC is a benefit that government employees get to travel twice in four years.

    Under the LTC, air or rail fare is reimbursed as per entitlements and a 10-day leave encashment is provided.

    However, due to the pandemic government staff is unable to utilise the LTC, so the Finance Ministry offered encashing it but with several riders.  

    The first and foremost condition being that those opting for the scheme will have to spend three times the fare and one time of the leave encashment before next March. 

    The second condition is that the amount must only be spent to purchase items having a goods and service tax of 12 percent and above. 

    Explaining how it will work, Jain said, "suppose, a government official is in the 30 percent income tax slab and is entitled to LTC benefits of INR 1,00,000 ($1,340). Then, as per the fine print of the scheme, he will have to spend three times the amount, which comes to INR 3,00,000 ($4,020) plus GST to avail the cash in lieu of the LTC. That's why this scheme will benefit only those who were planning to spend from beforehand. It will not induce fresh spending".

    Terming the schemes a conditional fiscal stimulus, S. K. Ghosh, a Group Chief Economic Adviser at the State Bank of India, said in a report that in the case of the LTC scheme, it is doubtful many will avail themselves of this option.

    "If the person availing this also has to the pay GST amount out of his/her pocket then it will be a burden on the person. The scheme is unlikely to work unless the government decides to pay the GST component also over and above the fare entitlement amount as is done by many public sector banks".

    "Further, since the LTC covers not just the employee but the dependent family members, the draw down on the personal income will be huge", Ghosh added.

    A central government employee, however, told Sputnik on condition of anonymity that the festive advance is a good option. "Though it has to be paid back in 10 installments, it may be a good idea, as there are no restrictions on where to spend".

    "Out of the two schemes, it is only in case of the festival advance proposal that one can think there is some additional income over and above the current income. This is where one can expect demand will get a boost by way of discretionary consumption", Ghosh too observed in the report. Facing a major disruption due to the contagion, the Indian economy contracted by 23.9 percent between April and June this year. 

     

     

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    pandemic, COVID-19, Indian Ministry of Finance, spending, festival, Economy, India
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