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Experts' reactions mixed on stimulus measures
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SME Times News Bureau | 13 Oct, 2020
Modest funding of Centre's latest demand boosting measures is likely to
give a marginal boost to the economy, industry watchers contend.
Accordingly, many have termed these measures as 'too little too less' to pull the economy out of the Covid-induced downturn.
These
measures introduced under the Rs 73,000 crore package provides for
'LTC Cash Voucher Scheme', 'Festive Advance' and loans to state
governments to spend as capital expenditure.
"The latest measures
are meant to encourage spending without fiscal cost to the exchequer.
But the schemes have been designed in a way that they might not have
much of an impact on boosting the aggregate demand. Attaching strings to
the schemes mean they will remain a non-starter," Sunil Kumar Sinha,
Principal Economist, India Ratings and Research told IANS.
"The
announced LTC scheme and festive advance is putting money in the hands
of risk-averse section which has greater propensity to save. Plus the
money allocated to states for undertaking capex is too small and
unlikely a ccelerate their capex spending. At best it may help states
clear their outstanding payments to vendors."
According to Suman
Chowdhury, Chief Analytical Officer, Acuite Ratings & Research:
"Given the projected consolidated fiscal deficit of around 12% of the
central and the state governments taken together, we believe there are
constraints in providing a large fiscal stimulus at this juncture."
"However,
the government is making an effort to release some additional funds
which will ensure moderately higher private consumption such as the new
festival schemes for government employees and also capital expenditure
by both the states and the central government."
On the LTC Cash
Voucher Scheme', experts described the requirement to buy goods or
services worth 3 times the fare and one time the leave encashment before
March 31, 2021 as a big turn-off.
Besides, the amount must be
spent on goods attracting GST on 12 per cent or more from a GST
registered vendor through digital mode and GST invoice will b e required
to be produced.
The LTC scheme provides central government
employees allowance to travel a "once anywhere in India and once to
hometown or twice for hometown visit" in a block of four years.
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.
Similarly, the amount earmarked under 'Festive Advance' is likely time be saved rather than spent.
Notably, central government employees number just about 47 lakh or only 8.5 p er cent of organised sector workforce.
On
the other hand, in April, the government froze dearness allowance hike
fo r central government employees till July 2021 this could also keep
demand muted.
"The impact of the schemes intended to spur
consumer and capital spending may turn out to be fairly modest," Aditi
Nayar, Principal Economist said.
"We anticipate that the LTC and
festival advance schemes will result in a temporary boost to consumer
sentiment and economic activity, with a sharper pick up in festive
season sales that would subsequently fizzle out."
Furthermore, an
additional capital expenditure of Rs 25,000 crore by the Centre was
announced in addition to providing long term loans to state governments.
"The
relatively small magnitude of the long-term loans to be provided by the
GoI to the states, is unlikely to provide any meaningful boost to capex
in FY2021," Nayar said.
Additionally, Madhavi Arora, Lead
Economist, FX and Rates for Edelweiss Securities said: "The effective
fiscal outgo led by the new measures announced appears to be around 0.2
to 0.3 per cent of GDP."
"This is not a significant amount and
will help marginally in stimulating demand. It needs to be seen if the
policy makers have more in the offing. Overall, there is still need for
more policy support for effective demand stimulus."
Consequently,
the measures announced prior to the festive season might not have much
impact on ramping up sales during the peak off-take period in India .
"This
will be a muted season. The economy will continue to contract, though
less than what was seen in the first quarter," said M. Govinda Rao,
Chief Economic Advisor, Brickwork Ratings.
"The amount is far too
small to make it significant. In fact, conditions themselves
ineffective because funds are fungible. The major deterrent is the
uncertain environment in which many people would like to build reserves
by saving."
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
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66.20
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64.50 |
UK Pound
|
87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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