BackN.K. Singh panel to submit new fiscal consolidation roadmap report today
The N.K. Singh panel is mandated by the Modi govt to suggest whether the Centre should adopt a flexible fiscal deficit target instead of a fixed borrowing limit every year
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New Delhi: A committee constituted by the government last year to set a new fiscal consolidation roadmap is likely to submit its report on Monday that may herald a new fiscal discipline law that binds the government’s borrowing limits within a year.
The committee headed by former secretary in the finance ministry and Bharatiya Janata Party (BJP) member N.K. Singh was originally expected to submit the report by 31 October 2016.
The gist of the committee’s report is likely to be announced in the budget while the full report will be released later, a government official familiar with the matter said speaking under the condition of anonymity. The government had mandated the committee to explore whether it should adopt a flexible fiscal deficit target instead of a fixed number every year.
After deciding to stick to the fiscal deficit target of 3.5% of gross domestic product for 2016-17, Union finance minister Arun Jaitley in the last year’s budget had proposed the constitution of such a panel to amend the Fiscal Responsibility and Budget Management (FRBM) Act.
“The FRBM Act has been under implementation for more than a decade. Both Central and state governments have made significant gains from the implementation of this Act. There is now a school of thought which believes that instead of fixed numbers as fiscal deficit targets, it may be better to have a fiscal deficit range as the target, which would give necessary policy space to the government to deal with dynamic situations. There is also a suggestion that fiscal expansion or contraction should be aligned with credit contraction or expansion, respectively, in the economy," Jaitley had said in his budget speech.
In the terms of reference drawn up for the committee, the finance ministry asked it to examine the need and feasibility of aligning fiscal expansion or contraction with credit contraction or expansion, respectively, in the economy.
It also sought to examine the need and feasibility of having a “fiscal deficit range" in place of the existing fixed numbers (percentage of GDP) as a fiscal deficit target.
The panel was also asked to review the working of the FRBM Act over the past 12 years and to suggest the way forward, “keeping in view the broad objective of fiscal consolidation and prudence and the changes required in the context of the uncertainty and volatility in the global economy".
“The committee will make its assessment and provide its views on the expected impact of its recommendations on the general government deficit and other FRBM parameters. The committee will also examine and give recommendations on any other aspect considered relevant in relation to the determination and implementation of the FRBM road map," the finance ministry said in a statement.
Economic affairs secretary Shaktikanta Das in an interview to Mint after last year’s budget had said that the proposed fiscal deficit range should not be too wide. “Given the kind of volatility that is prevailing all around, I think the world over governments need some political headroom to move the goalpost either way," he said. “The government should have some policy space and at the same time the band for policy adjustment should not be so large that it defeats the purpose of fiscal consolidation."
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