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Slew of sops by FM to boost the ailing Economy..
India Inc on Monday cheered Finance Minister Nirmala Sitharaman’s announcement of payment of cash in lieu of LTC and Rs 10,000 festival advance to government employees, saying these measures will boost demand while instilling a “feel good” factor in the people and energize growth. CII Director General Chandrajit Banerjee said the finance minister’s announcement on boosting demand through a two-pronged strategy will provide a huge impetus to spending, both by consumers and governments, which in turn will accelerate economic activity.
“The measures will also be a significant feel good factor for the people who have been going through some tough and challenging times due to the pandemic,” he added.
Ficci President Sangita Reddy said, “Our government has delivered in a very innovative and fiscally prudent way to boost demand in the economy. The set of measures announced today for supporting consumption and investment demand would energize growth over the remaining part of the year.”
“The overall impact of these measures will be to the tune of Rs 1 lakh crore and this is sizable,” she added.
Sanjay Aggarwal, President, PHD Chamber of Commerce and Industry, said calibrated and meaningful measures will have a multiplier effect on trade, industry and economy.
The measures will stimulate consumer demand, boost capital expenditure and push the economic growth trajectory on pre-COVID levels in the coming quarters, he added.
Gaurav Taneja, Partner and Leader, Government and Public Sector, EY India, said, “The finance minister’s announcement today on the allocation of an additional Rs 25,000 crore for capital expenditure is a welcome move”.
“Expenditure on roads, defence, water supply, urban development and domestically produced capital equipment have a high multiplier effect and will lead to acceleration in employment. The two schemes, (LTC) Cash Voucher Scheme and Special Festival Advance Scheme, will support in the demand side creation,” Taneja said.
Alok Agrawal, Partner, Deloitte Haskins & Sells LLP, said private sector organisations can review their employee compensation structure to enable their employees to take advantage of the announcements.
FM also announced additional capital spending and also Rs 12,000 crore, 50-year interest-free loan to States to boost the economy that has been battered by the pandemic and the resulting lockdown.
During a news conference, She said the government will give its employees income-tax-exempt cash vouchers in lieu of their entitled travel allowances this year.
This cash will have to be spent on buying goods that attract 12 per cent or more GST — a condition which eliminates the possibility of the cash being spent on food items.
Central public sector enterprises and banks will also follow the cue and give cash in place of leave travel concession (LTC) as travelling during the pandemic is near to impossible. Additionally, the government will as a one-time measure give Rs 10,000 salary loan to all its officers and employees as festival advance.
These two measures are “expected to create a consumer demand of about Rs 28,000 crore”, she said.
The government, which had in May announced a Rs 20 lakh crore ‘Aatmanirbhar Bharat’ stimulus, is pushing ahead with a full opening to try to boost the economy ahead of the usually high-spending festival season.
A tough lockdown imposed to stem the spread of coronavirus had resulted in the economy contracting by a record 23.9 per cent during April-June.
Together with the loan to states and additional capital spending, She said “very rough estimate is that potential private sector spending through LTC tax benefit will be at least equal to the government employee-led demand of Rs 28,000 crore and the total additional demand estimated to exceed Rs 1 lakh crore”.
She further said that the measures by the government to stimulate demand must not burden the common citizen with future inflation and must not put government debt on an unsustainable path.
For us as Investors, we perceive that these measures would lead to a lot of spending towards essential and discretionary spending like buying white goods which would again boost the sales and revive the corporate bottomline. Further it is also presumed that a portion of the money flow will get channelised into stock markets thereby lifting the Indices in the short run. So Investors- take the cues!
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