Millions of Indian public servants will be offered loans of around US$135 -- to be repaid over 10 months -- in a bid to boost spending and salvage the coronavirus-ravaged economy, the government said Monday.

The offer comes days after the World Bank said the economy would contract by nearly 10 percent this year, and coincides with next month's celebration of Diwali, one of the country's most important religious festivals.

Finance Minister Nirmala Sitharaman said federal government employees would also be allowed to spend about US$3.8 billion worth of unused travel benefits -- which are part of their salaries -- on goods and services.

"Festivals are coming... and we want to tell you that in the next six months spend the money on buying goods that will help your family," Sitharaman told a news conference.

With the loan scheme, the government will spend 80 billion rupees (US$1.1 billion) to give government employees a 10,000 rupee ($135 dollar) salary advance to be repaid over 10 months.

India's economy has been devastated by the coronavirus epidemic, but the government has announced plans for loans to encourage spending
India's economy has been devastated by the coronavirus epidemic, but the government has announced plans for loans to encourage spending AFP / INDRANIL MUKHERJEE

Sitharaman said the plan, aimed at encouraging Indians to spend some of their savings, would generate about US$4.9 billion for the economy.

The measures "would energize growth over the remaining part of the year", the Federation of Indian Chambers of Commerce and Industry said following the announcement.

The government has also set aside US$1.6 billion for 50-year loans to states to spend on roads, defence and other infrastructure by March.

The stimulation measures would not fuel inflation or put public debt "on an unsustainable path", Sitharaman said.

India has been easing a nationwide coronavirus lockdown since June but millions have lost their jobs.

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