But first, very quickly, the announced package is this: the central government and central government entrepreneurs can waive the LTA (holiday travel allowance) this financial year or get cash enough to release the encashment as well as rent tickets three times. ₹
A festival advance of Rs 10,000 will be available to all Central Government employees. State governments and the private sector can do the same. Pu for infrastructure ₹
States are being given loans of Rs 12,000 crore, zero interest, 0 years and another ₹
2,000,000 crore for current capital expenditure ₹
4.13 trillion already announced in the 2020-21 budget (read details here). The value of these measures is approx ₹
The loophole of 1 trillion hands is that it will be spent without actually spending so much.
And now this story: The Indian government is in a very tight position in terms of revenue and the room to find a way out of this crisis is very limited. India is not a hard currency that can print its way through the US or Britain. Earning a small amount of money or printing a currency should not be used at the beginning, but it should save a lot of money, especially when the lockdown is not fully lifted. How do you get people to spend? The way out is to try and push sections of the population to spend white-collar jobs in government and the organized sector. Rising stock markets, over-subscribed IPOs, swollen FD cuffs, debt repayments have all led to stagnation or non-loss of funds, which has led to the flow of funds to one part of India. Reducing costs has increased savings for a segment of Indians, and FM strives to keep this segment of the population at bay.
There is a practicality in this declaration that takes into account the bill-phasing industry in both the public and private sectors and makes it mandatory to digitize transactions, not cash. Items that attract 12% GST or more are required to spend money on a GST-compliant seller. This ensures that the money will be spent on high priced items like gadgets, phones, white goods, vehicles etc. The government pays GST reduction on these sales and this stimulates the demand. When we talk about policy and look admirably at the West for using it in policy, we should see a trend in India.
The push is doing this: each character will now have to figure out whether it is appropriate to leave the home vacation trip or spend now to take advantage of it. Similarly, using a pre-paid Rupee card to spend the advance of the festival (this is the money that will be returned to the owner) is an easy way to ensure that the money is actually spent and that the government gets GST revenue.
The 50-year, zero-interest loan for infrastructure is a very good deal for the states financially. Future value of ₹After 100 years, only %% is on inflation ₹.00. But the state just has to repay ₹100. Inflation would have reduced the value of the currency so much ₹The price of 100 futures will be reasonable ₹1. Catch-states will have to spend it till March 1, 2021. Half the money will have to be paid now and then half the money after the first half rent. Contractor bills for ongoing projects need to be spent on infra projects to settle and build assets.
The stock market fell slightly in the early days when the expected stimulus from the market was not expected, but it stabilized as soon as the announcements were digested. The financial cart should not be bothered too much and the strong desire to spend every rupee clearly on the last line of FM: “Today’s solution should not cause tomorrow’s problem.” Good financial cleanliness or BJP’s confidence in the seat of power for the near future?
Monica Halan is a consulting editor at Mint and writes on household finance, policy and regulation