While the tourism sector has termed Finance Minister Nirmala Sitharaman’s cash-for-LTC announcement a ‘major blow’ to the sector, the consumer durables sector has welcomed it along with the festival advance scheme, calling these a boost to consumer sentiment and economic activity. However, experts warn that this ‘boost’ is likely to be temporary and the measures may be inadequate to sustain demand.
The Federation of Associations in Indian Tourism and Hospitality (FAITH) said the government’s move to redirect LTC funds to consumer goods was a “vote of no-confidence” for the sector, which is among the worst-hit by COVID-19. After eight months of almost zero tourism activity, the industry was expecting the festive season to give the sector a boost. However, the government’s decision is likely to sap funds that could have gone into travel, FAITH said.
“The government’s move is contrary to our suggestions where we demanded that LTAs be used to incentivise travel. But the government announcement will discourage travel as even those who have savings would like to encash their LTAs,” said Jyoti Mayal of the Travel Agents Association of India (TAAI). An industry source however, said there will be no material impact on the industry as the LTA money would not have come to the travel industry in any significant way before March 2020. FAITH added that since this is a four-year block scheme, it will also cut away funds for future travel demand for the next year.
On the other hand, Kamal Nandi, president, Consumer Electronics and Appliances Manufacturers Association (CEAMA), and Business Head & EVP, Godrej Appliances said, “The special festival advance schemes will provide more liquidity to the customers for discretionary spends. With the upcoming festive season, this will augur well for the consumer durables segment.”
Edelweiss Research said in a note that the overall fiscal outgo owing to these measures amounts to ₹400-500 billion (0.2-0.3% of GDP). However, this is not a fresh fiscal expansion as the government is sticking to its existing borrowing programme. “Therefore, while the measures could support sentiments and demand during the immediate festive season, they may be inadequate to boost aggregate demand sustainably... more [is] needed for sustained recovery,” it added.
Aditi Nayar, principal economist, ICRA, said she anticipated the announcement to result in a temporary boost to consumer sentiment and economic activity, with sharper pick-up in festive season sales that would “subsequently fizzle out”.