Why imbalance in FM’s package to create market demand?

Union Finance Minister Nirmala Sitharaman is announcing the stimulus package

Covid 19 has destroyed the financial structure of many developing countries including India. The only way to come out of this financial collapse is to create demand for all goods and services. In this direction, the Finance Minister Nirmala Sitharaman has announced her 5th


The Center gave five packages to help MSME, daily wage earners and industries by way of extending additional funding from Banks, with Government guarantee and extension of the moratorium for six months September 30, 2020. To some extent say 60% of these packages helped industries, MSME sectors. But in the private sector in small units like hotels, automobile shops, service units retrenchment could not be prevented, though the Government declared to pay salaries to all employees.

Now agriculture produce production seems to be very good this year as estimated due to good monsoon. Businesses are progressing with purchases scaling up in rural and semi-urban areas while sales in the top 20 metro cities like Mumbai and Visakhapatnam dipped to minimal low forcing the Finance Minister Nirmala Sitharaman to announce yet another Rs1 lakh crore package yesterday to give a boost to the purchasing power of employees especially the local government employees the break of which is as follows:

  • LTC compensation for Govt Employees Rs.28,000 crore.
  • Additional Festival Advance Rs. 8000 crore but repayable in 10 months.
  • Interest-free loans to States Rs. 12,000 crore but repayable in 50 years.
  • Capital expenditure especially for NHAI road projects & Railways Rs.25,000 crore over and above budget allocation of Rs.100,000 crore.
  • LTC encashment in private employees including financial sector employees like banks, insurance etc Rs.28,000 crore.

Sidelights of the package which has widely been categorised into 3 types:

Out of Rs.12,000 crore, interest-free loans major share of Rs.2500 crore goes as a special package to Himalayan states UP, Bihar, West Bengal, Jammu & Kashmir, Uttarakhand, Assam and Ladakh. Rs 7500 crore will be allocated to states as per Devolution formula based on population.

Telangana gets a mere Rs.159.97 crore and AP Rs.308.32 crore as per Devolution of funds ratio by Planning commission. So the southern states are not happy with their small share when compared to the size of the Budget.

Remaining Rs.2000 crore will be given to states after implementation of four conditions of Atma Nirbhar package. Telangana gets Rs.42.66 crore and AP Rs.82.22 crore out of it.

The move may some extent do good to create demand. But considering the minimum of Rs50,000 salary of a clerk, Rs.10,000 advance is small which needs to be increased to Rs.25,000 at least. Hence, 75% of employees in south avail festival advance for celebrating Dussera, Diwali and Pongal festivals. Hence, getting small quantities of devolution needs to be reworked. All states need to be treated equally.