In the midst of electricity glitch in the Mumbai city which has halted the operating activities and communication, Finance Minister has come forward with stimulus package to boost the GDP growth and support the regional imbalance. There is no denying the fact that state governments are going through liquidity crunch to support the capital expenditure on infrastructure and other activities which are required to keep up at pace. In order to contain the GDP growth, the FM Nirmala Sitharaman has announced Rs. 12,000 crores worth of interest free loans for states out of which 1,600 crores will be provided to North-east states, 900 crores will go to Himachal Pradesh and Uttarakhand while 7,500 crores will be disbursed in other states. The residual amount of Rs. 2,000 crores will be disbursed t only those states which will fulfill the stated norms. The sanctioned amount of Rs. 12,000 crores will remain in addition with former borrowing limits and repayment will be after 50 years.
Announcement that took the sight of major market analysts was the LTC (Leave Travel Concession) cash voucher. In order to spur the consumer spending and aggregate demand, the government employees can cash in their LTC, keeping in mind that the same amount will be used only for purchasing good and services that attract GST @12% through digital payment mode. Due to ongoing pandemic, the government employees will not be able to avail their LTC that may elapse. The government stated that the scheme would cost Rs. 5,675 crores to them.
One more booster of Rs. 10,000 crores as a Special Festival Advance has been announced by Modi-led-government to stimulate demand in the economy. The total corpus will be disbursed to central government employees for spending in a prepaid Rupay Card. The amount to be received by employees will be spent digitally and associated expense of interest and card charges will be borne by government.
Must read: RBI kept the policy rate unchanged. Expect a K-shaped recovery this time
The Finance Minister has stated that the stimulus move will increase expenditure on road construction, water supply, defence infrastructure and urban development. Therefore, they have decided to increase the capital expenditure budget by Rs. 25,000 crores The deployment of additional amount in the economy will result in money multiplier effect in which government expenditure will be become income for people and expenditure from the people will turn into income for other people.