Moneycontrol PRO

FM's fiscal package a move in right direction, will boost spending, say experts

To encourage spending to spur demand, Finance Minister Nirmala Sitharaman has announced an LTC cash voucher scheme and a special festival advance scheme for employees.

October 12, 2020 / 05:38 PM IST

Finance Minister Nirmala Sitharaman's fiscal announcements on October 12 is a positive step and will add to consumption, experts have said.

To encourage consumer spending to spur demand, Sitharaman announced an LTC cash voucher scheme and a special festival advance scheme.

The reintroduction of the festival advance of Rs 10,000 for central government employees will come as a pre-paid RuPay card, which can be availed and spent by March 31, 2021.

The repayment of the interest-free festival advance will be in 10 installments and Rs 4,000 crore is likely to be spent on this.

Under the leave travel concession cash voucher scheme, government employees can opt for cash amounting to leave encashment, plus three times ticket fare, to buy items that attract a GST of 12 percent or more.

A move in the right direction

Chief India Economist of Barclays India Rahul Bajoria said the announcements are unlikely to have a material impact on the budget deficit but may boost consumer spending.

"We estimate that the actual fiscal cost of the announcement today is Rs 31,700 crore, or 0.16 percent of GDP, which we believe will not have a material impact on fiscal sustainability," Bajoria said.

Sanjay Dutt of Quantum Securities told CNBC-TV18 that given the current circumstances and situation of government finances, it could not have anything more coming at this point in time.

"It is definitely a positive step and a very practical step. It will add to consumption. We do need more and I think there is more to follow," Dutt said.

He said interest rates were collapsing, liquidity available was more than adequate and with the rolling back of restrictions, things would slowly get back to normal in a few months.

Arjun Yash Mahajan, Head Institutional Business at Reliance Securities said that the finance minister had tried to give impetus to consumer demand and pick-up in infrastructure activities, which can give a push to GDP.

"In our view, the announcement of Rs 37,000 crore capital spending package, including Rs 25,000 crore spending from the Centre in roads and highways and defence sector till March 31, 2021, bode well for infrastructure companies as this may result in a sharp improvement in the new ordering as well as pick up infra development works," Mahajan said.

However, the government’s effort to stimulate consumers' demand by offering advances and cash voucher schemes looked to be short-term in nature and lacked the commitment to have sustainable growth, he said

"This may lead to a kind of destocking led demand improvement ahead of festivals or fiscal end. However, it may not necessarily result in a sustainable recovery. This may not entice the market," Mahajan said.

Disclaimer: The views and investment tips expressed by experts on are their own and not those of the website or its management. advises users to check with certified experts before taking any investment decisions.

Nishant Kumar
first published: Oct 12, 2020 04:20 pm