New Delhi: The finance ministry may have pushed back implementing the new fiscal consolidation roadmap recommended by the N.K. Singh committee by two years after it asked the 15th Finance Commission to be chaired by Singh to dwell on the same matter.
While the N.K. Singh committee recommendations on fiscal discipline were supposed to come into force in the next fiscal starting April 2018, the 15th Finance Commission recommendations will be implemented starting April 2020.
In the 15th Finance Commission’s terms of reference released on Monday, the finance ministry said: “The Commission shall review the current status of the finance, deficit, debt levels, cash balances and fiscal discipline efforts of the Union and the states, and recommend a fiscal consolidation road map for sound fiscal management, taking into account the responsibility of the central government and state governments to adhere to appropriate levels of general and consolidated government debt and deficit levels, while fostering higher inclusive growth in the country, guided by the principles of equity, efficiency and transparency."
The move is expected to give finance minister Arun Jaitley more leeway to decide the fiscal deficit levels for the current and next fiscal year while he presents his fifth and last full budget on 1 February. This could mean putting off meeting the fiscal deficit target of 3% of GDP for 2018-19 by a year or two.
Jaitley has recently hinted at a recalibration of the fiscal consolidation roadmap, vowing to continue with the glide path. “No pause (on fiscal consolidation) but challenges arising from structural reforms... could change the glide path," Jaitley said at the annual Asia Pacific summit organized by Morgan Stanley in Singapore last week.
Economic affairs secretary Subhash Chandra Garg has said that meeting the fiscal deficit target of 3.2% in 2017-18 is a challenge given the structural reforms such as implementation of the goods and services tax (GST) and added that the government will take a final decision whether to borrow more this year after analysing the revenue collection figures in December. Revenue collected from GST for October at Rs83,346 crore was the lowest since its implementation starting 1 July.
While the government is expected to overshoot its disinvestment target of Rs72,500 crore for the first time, there could be a shortfall in non-tax revenue collection due to lower dividend transferred by the Reserve Bank of India (RBI) and lower telecom spectrum proceeds.
Jaitley will start holding his pre-budget consultation meetings with different stakeholders starting 5 December.
His first meeting will be with representatives of different agriculture groups followed by one with representatives of trade unions, the finance ministry said in a statement.
The fiscal responsibility and budget management (FRBM) review committee headed by N.K. Singh had recommended a fundamental shift in fiscal consolidation by targeting overall government (states+centre) debt, which the rating agencies track rather than the current practice of focusing on the centre’s fiscal deficit.
Rating agency Standard & Poor’s refused to upgrade India’s sovereign rating last week alluding to the high level of government debt and low per capita income even after Moody’s upgraded India’s rating. The FRBM review committee had recommended a debt-to-GDP ratio of 38.7% for the central government, 20% for the state governments together and a fiscal deficit of 2.5% of GDP, by financial year 2022-23.
In 2016-17, India’s debt-to-GDP ratio for the central government was 49.4% and fiscal deficit at 3.5% of GDP.
The targets were considered a little stiff to achieve, especially for the centre given the depleting resources for its social sector schemes after the 14th Finance Commission decided to raise the untied share of states in net central taxes to 42% from 32% after ending discretionary resource transfers from the centre to the states.
Chief economic adviser in the finance ministry, Arvind Subramanian, who was a member of the FRBM review committee, disagreed with the overall recommendations of the committee and added a dissenting note terming the fiscal deficit targets set by the committee “arbitrary".
N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy, said the calculations of the FRBM review committee were based on partial analysis and it seemed to have ignored some anticipated expenditure targets like sustainable development goals and Modi’s national development programme including New India-2022.
“The 15th Finance Commission may use this opportunity to look at the fiscal consolidation roadmap afresh," he added.
The FRBM review panel had also recommended enacting a new Debt and Fiscal Responsibility Act after repealing the existing Fiscal Responsibility and Budget Management (FRBM) Act, and creating a fiscal council that would monitor the government’s fiscal announcements for any year, provide its own forecasts and analysis, and advise the ministry on when to trigger the escape clause provision.