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What Nirmala Sitharaman’s consumption boost of Rs 1 lakh crore looks like

Finance minister Nirmala Sitharaman announced measures to stimulate consumer spending and capital expenditure that would generate demand of Rs 1 lakh crore, including the private sector , and in turn help growth of gross domestic product ( GDP ).A leave travel concession ( LTC ) cash voucher scheme and special festive advance scheme for government employees is expected to generate additional consumer demand of Rs 36,000 crore, the government said, pegging the numbers on conservative estimates. Capital expenditure by Centre and states is likely to generate demand of about Rs 37,000 crore.“Given that private sector spending through LTC tax benefit would be at least Rs 28,000 crore, we estimate total demand boost due to today’s measures to be more than Rs 1 lakh crore,” Sitharaman said, after elaborating on the measures.Central government employees that have not been able to avail leave travel concession (LTC) – air or rail fare as per scale and tax exempt leave encashment of 10 days plus dearness allowance – due to travel restrictions the Covid 19 pandemic, will be allowed to spend the money with riders.“They can spend this money (travel fare) and three times this amount (from their own pocket), in buying items that have a GST rate of 12% or more of their choice through digital mode to benefit from this scheme,” Sitharaman said on Monday.The spending will have to be done before March 2021, and will have to be done at a goods and service tax (GST) registered vendor, which means an invoice will be required.Demand infusion in the economy by Central and state government employees is likely to be around Rs 28,000 crore, Sitharaman said while giving conservative estimates. The cost to the government on account of Central government employees will be Rs 5,675 crore and Rs 1,900 crore on account of employees of public sector banks and enterprises that avail this scheme.“State government and private sector will also get the same taxation benefits,” she added. If potential private sector spending happens, an equal Rs 28,000 crore demand can be generated, she said.Experts said private sector companies would have to review their employee salary structures, while the income tax department would have to amend certain rules.“Private sector organisations can review their employee compensation structure to enable their employees to take advantage of the announcements, such as where there is an LTA component as part of the flexi-components in the cost-to-company basket,” said Alok Agrawal, Partner, Deloitte Haskins & Sells LLP.The finance minister revived the special festival advance as a one-time exception under which all Central government employees can avail Rs 10,000 on interest-free basis up till March 31, 2021 which can be repaid in 10 installments. “This will be given in a pre-paid Ru-Pay card which can be spent on anything but cash cannot be withdrawn,” she said, adding that bank charges will be borne by the government.The government expects this measure to generate at least Rs 8,000 crore in additional consumer demand.The government issued a 50-year interest-free loan of Rs 12,000 crore for capex for states across the country. North East, Uttarakhand and Himachal Pradesh will get Rs 2,500 crore while all other states will get Rs 7,500 crore in proportion to their share in the Finance Commission devolution.“Pending bills can be paid, settle supplier bills… but states can spend this money on capex schemes by March 31, 2021,” Sitharaman added. The servicing of these loans will begin after 50 years.A separate Rs 2,000 crore will be issued to states that meet three of four reforms announced in the Atma Nirbhar package.“Money spent on infrastructure and asset creation has a multiplier effect on the economy, it not only improves current GDP but also future GDP, we want to give a new thrust to capital expenditure of both states and Centre,” Sitharaman said.The additional budget of Rs 25,000 crore, in addition to Rs 4.13 lakh crore given in Budget 2020, will be provided for capital expenditure on roads, defence, water supply, urban development and domestically produced capital equipment.“We estimate that the measures announced today, for boosting consumer spending and capital expenditure, will boost demand by Rs 73,000 crore, to be spent by March 31, 2021,” Sitharaman said. Read from source….