The government on Monday announced steps to stimulate consumer demand, including advance payment of a part of the wages of central government employees during the festival season and more capital spending as it tries to bolster the pandemic-hit economy. The government will allow its employees to spend tax-exempt travel allowances on goods and services, Finance Minister Nirmala Sitharaman told a news briefing.
She said the government will also shore up investment by spending extra Rs 25,000 crore ($3.41 billion) on roads, ports and defence projects, and offering Rs 12,000 crore in interest-free 50-year loans to state governments for spending on infrastructure before March 31,2021.
"All these measures are likely to create an additional demand of Rs 73,000 crore ($9.96 billion)," Ms Sitharaman said, adding the proposals would stimulate demand in a "fiscally prudent way."
Prime Minister Narendra Modi's government, which imposed a tough lockdown to stem the spread of the coronavirus in March, is pushing ahead with a full opening to try to boost the economy ahead of the usually high-spending festival season, which runs from October to March.
The latest package would not require any extra borrowing by the central government, Tarun Bajaj, economic affairs secretary at the Ministry of Finance, told reporters.
The government said last month it would stick to revised borrowing target of Rs 12 lakh crore ($163.78 billion) in the current fiscal year ending March, against an earlier estimate of Rs 7.8 lakh crore.
India's total coronavirus cases have crossed 7.12 million, second only to the US, with deaths reaching 1,09,150.
The Reserve Bank of India left key policy rates unchanged on Friday, while retaining an accommodative monetary stance to support an economy that is projected to contract by almost 10 per cent in the current fiscal year.
($1 = Rs 73.2670)