The finance ministry will soon decide on the NK Singh panel’s recommendations on fiscal management, a senior official said on Thursday. The government will calibrate measures suitably to trim fiscal deficit, which could also impact the debt level, he added. “There are many important recommendations (of the NK Singh panel). Some of it could be part of the Budget…. Very soon the government will take decisions on that,” the official said.
The panel has suggested that the Centre should aim for a fiscal deficit of 3% of the GDP for three straight years starting the current fiscal and gradually reduce it to 2.5% by 2022-23 and partner states in adhering to fiscal discipline. The panel’s recommended fiscal deficit for 2017-18 is lower than the Centre’s budgeted target of 3.2%, although the government intends to lower it to 3% from the next fiscal.
The panel’s report was unique in the sense it kept debt, along with fiscal deficit, in the centre of fiscal management principles, moving away from the current practice of targeting only fiscal deficit. It suggested a ceiling for general government (both the Centre and states) debt of 60% of GDP by 2022-23. And within this overall limit, a ceiling of 40% should be adopted for the Centre, and 20% for the states. While the Centre’s debt-to-GDP ratio was 49.4% in 2016-17, states’ stood at 21%, it said. The country’s average general government debt is as much as 28 percentage points higher than similarly-rated emerging market peers, the report said.
The panel also recommended the setting up of a new fiscal council as an autonomous body but under the finance ministry. This council will be tasked with preparing multi-year fiscal forecasts for central and general government, firming up a debt and fiscal sustainability analysis that makes projections on key fiscal indicators and providing an independent assessment of the Centre’s fiscal performance and compliance with targets set under this Act, among others, it had said.
There is some stress in the financial sector, especially the banking system, the official said, adding, that’s an area where lot of action is required.