Indecision over India’s fiscal law ought to end2 min read . Updated: 08 Feb 2023, 01:02 AM IST
We should either amend the FRBM Act to make space for a counter-cyclical fiscal policy orrepeal it altogether. In any case, a 3%-of-GDP deficit target was a largely arbitrary choice
In a country rife with relativist attitudes, with context accorded priority, only mild murmurs are raised by successive deviations from the aims of our fiscal law enacted in 2003. While the demands of India’s Fiscal Responsibility and Budget Management (FRBM) Act have patently proven unrealistic, as seen during the covid crisis, indecision over its retention as a statute seems to persist in policy circles. So, yet again, the Union finance ministry had to invoke an escape clause on its budget deficit proposal of 5.9% of GDP for 2023-24. This is lower than this year’s 6.4%, but nearly twice the FRBM limit of 3% anyway. The ministry’s explanatory note on this gap refers to global headwinds faced by our economy soon after the pandemic eased and makes a case for fiscal flexibility, so that action can be taken to grant Indian growth resilience against shocks. While spending our way out of the covid squeeze was necessary, the wisdom of a fisc tightened as slowly as planned is unclear. What Parliament must do, nonetheless, is subject the FRBM Act to a full legislative review. Rather than cry crisis year after year even as the fiscal framework gathers dust, we should either revise or repeal it.