<p>The stimulus package announced by the government to spur demand in the economy is too little, too late and meant for too few people. The Rs 20 lakh crore package, of mostly loans, of May was more a policy package than a set of actual proposals to stall growth decline. Since then the economy has crashed in double digits. It is accepted that demand has to be stimulated by inducing people to spend and businesses to gear up activity. But the present package falls badly short on that score, though it is claimed to amount to Rs 1 lakh crore. The government’s proposed expenditure is less than half of it, and its effect on the economy depends on a number of ifs and buts. </p>.<p>The offer to convert central government employees’ leave travel concession into a reimbursable allowance demands that the employee spend an amount from his side also. It is doubtful if anybody would be ready to do such spending in the current uncertain milieu. The fare component of the LTC would be eligible for a tax break only if three times that amount is spent. Another proposal is to give a festival advance of Rs 10,000 per person to central government staff. The government’s expectation may be that the amount lost in income tax may be made up by the GST on the purchases made with the prepaid Rupay card.</p>.<p>These proposals are expected to boost demand by Rs 36,000 crore. But the terms and conditions may limit their usefulness. More important is the impropriety of using taxpayers’ money to give festival advances to central government staff who already enjoy 7th Pay Commission salaries even as millions of poor people, migrant workers and private sector employees who have lost jobs who are in distress are ignored. The other component of the stimulus consists of a 50-year interest-free loan of Rs 12,000 crore to the states and an increase in the central government’s capital expenditure by Rs 25,000 crore. The money for the states is very modest and will not make much difference to their finances. The capex plan of Rs 25,000 crore is also small and it will take much time to be implemented. </p>.<p>The package is unlikely to give any major push to the economy, which is expected to contract by 10% this year. Nudging the economy with it is like trying to move an elephant with a feather. Demand on a scale that is needed can be created only with big increases in consumption and with large investments. That calls for a bigger strategic plan which will encompass most people and sectors of the economy, but the vision for that is lacking.</p>
<p>The stimulus package announced by the government to spur demand in the economy is too little, too late and meant for too few people. The Rs 20 lakh crore package, of mostly loans, of May was more a policy package than a set of actual proposals to stall growth decline. Since then the economy has crashed in double digits. It is accepted that demand has to be stimulated by inducing people to spend and businesses to gear up activity. But the present package falls badly short on that score, though it is claimed to amount to Rs 1 lakh crore. The government’s proposed expenditure is less than half of it, and its effect on the economy depends on a number of ifs and buts. </p>.<p>The offer to convert central government employees’ leave travel concession into a reimbursable allowance demands that the employee spend an amount from his side also. It is doubtful if anybody would be ready to do such spending in the current uncertain milieu. The fare component of the LTC would be eligible for a tax break only if three times that amount is spent. Another proposal is to give a festival advance of Rs 10,000 per person to central government staff. The government’s expectation may be that the amount lost in income tax may be made up by the GST on the purchases made with the prepaid Rupay card.</p>.<p>These proposals are expected to boost demand by Rs 36,000 crore. But the terms and conditions may limit their usefulness. More important is the impropriety of using taxpayers’ money to give festival advances to central government staff who already enjoy 7th Pay Commission salaries even as millions of poor people, migrant workers and private sector employees who have lost jobs who are in distress are ignored. The other component of the stimulus consists of a 50-year interest-free loan of Rs 12,000 crore to the states and an increase in the central government’s capital expenditure by Rs 25,000 crore. The money for the states is very modest and will not make much difference to their finances. The capex plan of Rs 25,000 crore is also small and it will take much time to be implemented. </p>.<p>The package is unlikely to give any major push to the economy, which is expected to contract by 10% this year. Nudging the economy with it is like trying to move an elephant with a feather. Demand on a scale that is needed can be created only with big increases in consumption and with large investments. That calls for a bigger strategic plan which will encompass most people and sectors of the economy, but the vision for that is lacking.</p>