The FRBM Act does not talk of any target. We will come up with guidelines on FRBM Act, indicating that a cap may be put on reducing fiscal deficit of the Centre. He was responding to the comments on FRBM Act by C Rangarajan, chairman, 12th Finance Commission.
FRBM Act envisages that Central revenue deficit will be eliminated by 2007-08. A target for fiscal deficit relating to GDP has not been specified but may be indicated in the rules to be framed in relation to the Act, Dr Rangarajan said inaugurating a conference organised by National Institute of Public Finance and Policy.
Advisor to finance minister Vijay Kelkar and Dr Rangarajan favoured that state governments should also come up with fiscal responsibility acts to contain their fiscal deficits. We had a double digit fiscal deficit in the last few years. An MoU between the Centre and state does not hold. A Bill is much more powerful for reducing the states fiscal deficit, said Dr Kelkar.
Dr Rangarajan lauded initiatives of Karnataka, Kerala, Maharashtra and Punjab for introducing FRBM bills, and said, One may hope that this trend will catch up and other states would also impose explicit self-discipline on themselves through such legislations.
The panel warned that rising fiscal deficit of the Centre and states at over 10 per cent in 2002-03 may have an adverse impact on debt, developmental expenditure and growth.