A slim stimulus: On Centre’s move spur demand (The Hindu)

Mains Paper 3: Economy 
Prelims level: LTC allowances
Mains level: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment 

Context:

• Finance Minister’s fresh set of measures, on Monday, to spurconsumer demand and capital expenditure include an interestingly designed tweak to the LTC allowances of government employees.

Boosting demand:

• Her reckoningis that these would lend a ?73,000 crore demand spurt to prop up the ailing economy in the second half of this year.
• This could rise beyond ?1-lakh crore if private sector employers offered similar LTC incentives.
• With industrial output slipping for the sixth month in a row in August, the clamour for new stimulus measures had been growing ahead of a particularly bleak festive season.
• But this package, which will cost the exchequer about 0.2% of GDP, taking overall fiscal support through the pandemic to 1.7% of GDP, may not be as persuasive as may have been envisaged.
• Enhancing the Centre’s capital expenditure in specific sectors by ?25,000 crore from the extant level of ?4.12-lakh crore is laudable.
• But pandemic restrictions have affected the ability to get new projects going. Till August, just about ?1.34-lakh crore of the budgeted capex had been spent.
• The same problem plagues the ?12,000 crore offered as an interest-free 50-year loan to States for capital spending over the next six months.

Loosening the pursue strings:

• States have been allowed to use these loans to pay off existing contractors’ dues, the amounts on offer are unlikely to have an impact.
• ?2,000 crore has been set aside for States that manage to complete three of four reforms mandated in the earlier Atmanirbhar Bharat package, in order to get additional borrowing leeway.
• Only some States may qualify for this. Too many conditions also pervade the consumption push.
• Linking LTC perks of government staff who have not availed them yet due to restricted travel during the pandemic to spending on non-travel items is an innovative nudge.
• But requiring them to spend three times their return ticket fares under LTC on goods and services attracting at least 12% GST from GST-registered vendors, may be too prescriptive and overlooks the reluctance towards discretionary spending due to low visibility on the economy’s prospects.
• Eligible employees may find the scheme complex and too expensive to avail. One hopes the government has more in its quiver to expedite recovery.
• Waiting too long for the pandemic to ease before loosening the purse strings further could extend the pain.
• The focus should not just be on conjuring a trickle-down stimulus from those with their jobs and savings intact but also on relief measures for those without.
• Even the IMF has been urging countries to spend now to diminish the damage.
• Avoiding spending now to maintain fiscal discipline and prevent a rating downgrade seems sensible, but if the underlying edifices of the country’s growth story crumble in the process, a future downgrade will become inevitable.

Conclusion:

•    The govt. cannot wait for the pandemic to ease to loosen the purse strings further.

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Prelims Questions:

Q.1) With reference to the Multi-Mode Hand Grenades (MMHG), consider the following statements:
1. These grenades will be replacing the World War-II vintage ‘Mills Bomb’ type 36M hand grenades now used by the Army.
2. Ordinance factory, kanpur which has developed the MMHG.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: A

Mains Questions:

Q.1)What are the economic havoc that pandemic has posed on the various sectors of the economy? What are the measures government have opted and need to be opted to overcome the same?