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Nirmala Sitharaman announces steps to boost demand, but will they work?

Nirmala Sitharaman announces steps to boost demand, but will they work?

For the first time since March, when the country went into a stringent lockdown, Finance Minister Nirmala Sitharaman yesterday announced measures aimed at boosting the sagging demand. Until now all steps taken to support the economy in the wake of the unprecedented corona-induced recession were meant to address supply-side impediments.

However, the measures are limited primarily to government employees. To push consumption, the government has to carve out ways which reach private citizens too.

While many experts said that the measures—LTC Cash voucher scheme for government employees and the Special Festival Advance Scheme—may not be adequate to boost demand, it also comes up with several conditions.

In case of the LTC Cash Voucher Scheme, employees would be able to use the money only through the digital mode to buy items which attract GST of 12 per cent or more, increasing consumer demand. Both schemes are valid till March 31, next year.

“The announcements are in the right direction and were much required as until now no measures were aimed to boost demand. All announcements made in May were to ease supply-side constraints. Demand has been a cause for concern and we have to wait and watch whether these actually help,” Deepak Sood, secretary general, Assocham, told IndiaNarrative.com.

“The two schemes will support demand creation. The fact that this needs to be utilized till March 31, 2021, means that the benefit will be immediate,” Gaurav Taneja, partner and leader, government and public sector, EY India, said.

The economy in the first quarter of the current financial year recorded a shocking 23.9 per cent contraction.

In May, Sitharaman had carved out a slew of measures as part of the Rs 20 lakh package which were aimed at removing supply-side constraints.

Several of those steps—which were reform measures—are also expected to help the economy in the long term.

Sood added that the government must also look at other ways to boost demand. Assocham has prescribed reduction in GST rates across the board for the time-being.

Three retailers IndiaNarrative.com spoke to said that the footfall of consumers has increased over the last few weeks and they expected consumption to further increase with Dusshera and Diwali approaching..