Finance minister Nirmala Sitharaman has said the current upturn in economic activity in last two months is not just pent up demand and recovery is likely to sustain coming months.

“I am not just sure if just the pent up demand or festival demand will explain consistent more than ₹1 trillion collection in GST for two months. Yes, this is the season when festive demand adds a bit more fervor to demand which prevails through in a year, but I also talk to industry leaders like in core sector industries such as cement, iron and steel, who are looking at capacity expansion. It is an indication that additional demand is what is coming in and is likely to sustain,” Sitharaman said speaking at the Hindustan Times Leadership Summit.

On rising inflation which has forced the central bank to pause its rate cut cycle, Sitharaman said she is not worried about the current high level of inflation as it is seasonal in nature. “Rise in prices in commodities are largely seasonal.

“Government is very frequently looking at changes and taking conscious calls for imports, and sorting out logistical issues. The blip in inflation will ease out. I don’t see food item inflation continuing,” she added.

Asked whether the reluctance by RBI to further cut policy rates puts additional pressure on the government to take more fiscal measures to revive the economy, Sitharaman said it would need delicate, continuous real time balance by both the monetary and fiscal authorities to revive the economy. “Lot of calibration and coordination has to be worked out and we are continuing to do that,” she added.

The RBI on Friday projected the Indian economy to contract 7.5% in FY21, shallower than 9.5% contraction it projected just two months ago, on the back of a host of lead indicators suggesting sustained economic recovery.

Indian stocks hit fresh highs on Friday after the Reserve Bank of India revised upwards its GDP target for the current fiscal year. The central bank kept the interest rates steady and pledged to ensure adequate liquidity in the system.

Sensex settled at 45,079.55, up 446.90 points or 1.00%, while Nifty climbed 124.65 points or 0.95% to end at 13,258.55.

ICICI Bank, closing over 4% higher, was the top Sensex gainer followed by Ultratech Cement, Sun Pharma, Bharti Airtel and SBI. RIL, Bajaj Finserv, HCL Tech and HDFC were among the laggards. Of 30 Sensex shares, 25 closed in the green.

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The central government on Monday announced a ₹73,000 crore demand push to the economy but no consensus to break the deadlock between the central government and those of states and UTs over mode of payment of GST compensation, Union Finance Minister Nirmala Sitharaman after another GST Council meeting.

By the end of Monday’s meeting 12 states had accepted the centre’s payment proposal – to borrow from the markets on their own account – but nine others stood their ground and insisted the centre do the borrowing.

Overall 21 states – mostly those ruled by the BJP or those that have supported it on various issues – have agreed to borrow. Ms Sitharaman has asked for time to consider the demands of the nine states who refused to do so after today’s meeting.

Earlier in the day finance minister announces govt employees LTC CASH scheme and other measures push for economy .

“Measures by the government to stimulate demand must not burden the common citizen with future inflation and must not put government debt on an unsustainable path. Today’s solution should not cause tomorrow’s problem,” finance minister Nirmala Sitharaman said, explaining the government’s philosophy behind Monday’s measures.

RBI on Friday announced a slew of steps to reduce borrowing costs to revive the economy without cutting policy rates, and also for the first time admitting that the economy will contract 9.5% in this fiscal year with a mild expansion in economic activity in the March quarter.

The government’s announcements to boost consumer demand such as leave travel concession (LTC) cash voucher scheme ( ₹5,675 crore) and special festival advance scheme ( ₹4,000 crore) are mostly frontloading expenditure with balancing offsetting changes later that will directly benefit over 11 million central government employees.

The central government employees who have not availed of LTC in the past four years, including FY21, can utilize the scheme if they agree to digitally spend three times the airfare or rail fare and the full amount of total leave encashment before 31 March on purchases attracting minimum 12% good and services tax (GST).

Under the special festival advance scheme, an interest-free loan of `10,000 to all central government employees will be offered as a one-time facility to be recovered in a maximum of 10 instalments.

The Centre is also encouraging state governments and private organizations to give similar facilities to their employees.

Sitharaman suggested that the government has targeted this well-off category of central government employees to boost demand as they have escaped the adverse economic effects of the pandemic with their salaries more or less protected and savings increased.

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