Why govt employees may not opt for LTC cash voucher scheme; SBI Research lists out major roadblocks

The research report has estimated that only around 10-15 per cent employees would use the LTC cash voucher scheme.

Finance Minister Nirmala Sitharaman announced the LTC cash voucher scheme for the government employees on Tuesday, however, the scheme has a ‘conditions apply’ tag attached to it. The scheme is unlikely to work unless the government decides to pay the GST component also over and above the fare entitlement amount as is done by many PSU banks, said the SBI Ecowrap report. Further, since LTC covers the dependent family members as well, the drawdown on the personal income will be huge, the report added. The research report has estimated that only around 10-15 per cent employees would use the scheme. 

The design of the LTC cash voucher scheme is such that it is difficult to draw a direct link with the standard fiscal multiplier logic and demand generation, SBI said in the Ecowrap report. Regarding the spending on consumption, the report underlined that the consumption boosting proposal ignores the vital fact that a rise in savings is due to the curtailment of discretionary consumption in higher fractile groups. The fractile group that is targeted under the proposal is more inclined towards saving and thus any additional savings are more likely to be not consumed.

However,  it is expected that the festival advance proposal may lead to some additional income over and above the current income. This is where one can expect demand will get a boost by way of discretionary consumption, Ecowrap report said. The festival advance can be taken in November, but it has to be returned in a maximum of 10 installments, out of which, 4 installments will be paid back in this fiscal. This would leave a burden of Rs 2,400 crore to the exchequer. 

Further capital expenditure will lead to Rs 25,000 crore cash outgo for the Centre’s budget allocation and Rs 12,000 crore loan for States. Taking all these into account, Rs 40,000 crore is the additional cash outgo of the Centre during the current fiscal. Meanwhile, the SBI research report said that it hopes that the new measures are not a case of too little too late.

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