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Pre-Festive Package No Good, Aggressive Steps Needed

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Pre-Festive Package No Good, Aggressive Steps Needed
Vishav - 13 October 2020
The pre-festive package announced by the government on Monday to stimulate demand is not sufficient to get desired results and its effect on consumption would be marginal, according to a research report by Emkay Global Financial Services.
It added the Rs 36,000 crore worth of demand estimated by the government may be an overstatement since a lot of “assumptions and changes in the spending behaviour are expected” to achieve that number.
In an attempt to revive demand, the government had on Monday announced a economic package that included measures to stimulate demand as well as plans for infrastructure spending. The finance minister had said that the total benefit of the two schemes could create Rs 36,000 crore worth of demand.
“In our view, the Rs 36,000 crore of demand drive announced by the FM is an exaggeration as a lot of assumptions and changes in the spending behaviour are expected. FM is incentivising or channelising the savings of the consumers into spending… The pre-festive package comes in small doses and is not likely to be sufficient to move the needle. The recovery in demand is likely to be ephemeral and thus not likely to be reflationary in nature. In addition, we have witnessed job losses of around 19 million in salaried class. Hence revival in that demand would require more aggressive steps by the govt,” the report by Emkay Global said.
In terms of consumer spending, Finance Minister Nirmala Sitharaman had announced two components — LTC Cash Voucher scheme and Special Festival Advance Scheme. Under LTC cash voucher scheme, full payment of leave encashment along with tax free fare payment - can be availed by government employees if they buy three times the travel fare's worth of goods which attract 12 per cent or more GST, and one times the leave encashment. The payment needs to be through digital route. The spending has to be done by March 31, 2021. Demand infusion due to this scheme is estimated to be Rs 28,000 crore assuming participation by 50 per cent of states.
As part of the other scheme, a one-time advance of Rs 10,000 is to be given to all central employees in the form of RuPay cards, which they need to spend before March 31, 2021. The recovery of these loans would in up to 10 instalments. Rs 4,000 crore is likely to be disbursed as per this scheme. If all states follow it, it would add another Rs 9,000 crore.
“We believe that the magnitude of these schemes is quite low compared to seventh pay commission. This benefit is largely to a small section of consumers who were largely unaffected. Even though it might help in stirring up demand it would be very ephemeral in nature,” the report by Emkay Global said.
Meanwhile, Saraswathi Kasturirangan, Partner, Deloitte India, said that since the benefit of the LTC voucher scheme is available to private sector employees as well, it is important for companies to look at their policies around leave travel concessions, and amend them in line with the new scheme to extend the tax benefits to its employees.
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