Industry says not enough to move needle

Sitharaman on Monday announced an ‘LTC Cash Voucher Scheme’ which will be launched with applicability till March 31, 2021. Under the LTC scheme, central government employees get LTC in a block of four years — one travel to anywhere in India and one to hometown or two for hometown visits. Air or rail fare, as per pay scale or entitlement, is reimbursed and in addition leave encashment of 10 days (pay and dearness allowance) is paid.

In this case, the government will make full cash payment on leave encashment and payment of fare in three flat-rate slabs depending on class of entitlement, including making the fare payment tax free.

Here’s where the brokerages and industry sources disagree:

ICICI Securities said in a report that it is difficult to estimate how many people will avail this scheme. “The requirement to contribute money from one’s own pocket could prove to be a dampener for many,” it said. It noted that in April, the government froze dearness allowance hike for central government employees till July 2021 which could also keep demand muted.

Moreover, requirement to buy goods or services that attract 12 per cent or more GST rate and only through digital mode could restrict options.

Noting that it is an earnest attempt to revive demand, a report by Emkay Research said that however, the package “is not likely to be sufficient to move the needle”.

“The recovery in demand is likely to be ephemeral and thus not likely to be reflationary in nature, i.e., having a low demand push impact on inflation,” it said.

Further, with the recent job losses of 1.9 crore people in salaried class, revival in that demand would require more aggressive steps by the government, it said.

The impact of the Rs 73,000 crore package would be marginal it said, adding that generally capital spending has much higher multiplier impact on growth and is likely to last longer.

However, the Emkay report noted that pent-up demand and demand for white goods or durables ahead of the festive season could provide some traction for this scheme.

On the additional capital expenditure of Rs 25,000 crore by the Centre, the ICICI Securities said that although the entire fresh capex amount of Rs 25,000 crore is fiscal outgo, the actual fiscal cost is expected to be lower than the announced number.

A report from SBI Ecowrap brought similar observations:

“In the case of LTC scheme, it is doubtful how many will avail this scheme as if the person availing this also has to pay GST amount out of his/her pocket then it will be a burden on the person and in fact he would be better off paying taxes on the amount availed by him. The scheme is unlikely to work unless the Government decides to pay GST component also over and above the fare entitlement amount as is done by many PSBs. Further since LTC covers not just the employee but the dependent family members, the draw down on the personal income will be huge. For instance for employee eligible for business travel get two way fair value of Rs 36000. For a family of four this works out to Rs 1,44,000. The total expenditure works out to Rs 4,32,000 plus GST amount of Rs 1,03,680.”

Speaking on consumer spending pattern, SBI analysts observed, “the consumption boosting proposal ignores the vital fact that rise in savings is due to curtailment of discretionary consumption in higher fractile groups. The fractile group that is targeted under proposal have higher marginal propensity to save and any additional savings is more likely to be not consumed.”

The analysts prayed that the measures are “not too little or too late”. They say, “We believe only around 10-15% employees would use the LTC Scheme. In case of festival advance assuming it is taken in November and since it is returned in maximum of 10 instatements, 4 instalments will be paid back in this fiscal, thus leaving a burden of Rs 2400 crore to the exchequer. Further capital expenditure will lead to Rs 25,000 crore cash outgo for Centre’s budget allocation and Rs 12,000 crore loan for States. Taking all these into account, Rs 40,000 crore is the maximum additional cash outgo of the Centre during the current fiscal, which is around 0.21% of GDP. The last stimulus package had a cash outgo of Rs 2 lakh core or around 1% of GDP. Let us hope these new measures are not a case of too little too late. However, on a positive note, power demand across major states continue to increase, implying economic recovery. Economic activity as revealed by our business activity index also shows improving momentum since August. The moot question is sustainability.”

* With inputs from agencies

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