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Government Acts to Create Demand with Incentives to States and Government Employees

create demand in the economy

At the beginning of the Corona crisis, the government spent the resources in putting the meal on the plate of vulnerable section, rapidly ramping up of medical infrastructure, giving relief and assistance to various sectors like MSME, agriculture etc. Now at this stage, while learning to live with the pandemic till vaccine arrives, the challenge before the nation is to create demand in the economy.

The measures announced by Finance Minister Nirmala Sitharaman on October 12, 2020 are evidently aimed at inspiring spending, so that the money flows to people in need and looking for work. The Finance Ministry and its advisors had kept the powder dry to ensure stimulus at the right time, and the step has been announced keeping in line with the upcoming festive season to keep the sentiment high.

States Empowered to Spend

₹12,000 crore incentives have been announced for States to increase their capital expenditure. Within this ₹12,000 crore incentive, ₹1,600 crore will be divided equally between eight North Eastern States. Additionally, ₹900 crore will be divided equally between the Hill States of Himachal Pradesh and Uttarakhand. The States not covered in the package for North Eastern and Hill States will receive the balance ₹7,500 crore, which will be allocated in the same proportion as laid out in the interim report of the 15th Finance Commission for 2020-21.

The Finance Minister asserted that the money spent for infrastructure will create demand on multiple fronts.

LTC Scheme

Due to travel restrictions because of the pandemic, Central government employees 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.

The government has now offered a way to utilize this opportunity with some conditions. 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. The transaction should be carried in digital means and the spending will have to be done before March 2021. Providing GST invoice for the same is required.

FM Sitharaman said that with even 50% states opting for this scheme, the government expects to infuse ₹9,000 crore into the economy.

Festival Advance

An interest-free festival advance of ₹10,000 to government employees is another measure by the Modi government to boost consumer demand. This is a one-time restoration of the festival advance recoverable in maximum 10 advances. This will be given through pre-loaded RuPay card of the advance value. This is expected to generate at least about ₹8,000 crore of demand.


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