The Budget’s acceptance of certain key suggestions by NK Singh-led FRBM panel on debt and deficit to “impart unquestionable credibility” to the Centre’s fiscal discipline has left out an independent institutional mechanism the committee had proposed to monitor the government’s performance. Also, while the Centre accepted the panel’s recommendation to lower the its debt burden to 40% of GDP, it relaxed the FY23 deadline suggested by the panel. Instead, it will endeavour to meet this target only by FY25. Even the 3% fiscal deficit target — which was supposed to be achieved in FY19 — will be met only in FY21, although government officials have hinted that the target could be attained as early as FY20. The amendments to the FRBM Act 2003 in the finance Bill eludes reference to a fiscal council or an equivalent body to “provide an independent assessment of the central government’s fiscal performance and compliance with targets set under this Act”, as recommended by the panel.
Similarly, the amendments also suggest recognition of nominal gross domestic product (GDP) published only by the Central Statistics Organisation (CSO) from time to time. However, the Centre’s calculation of FY18 fiscal deficit wasn’t based on the CSO’s advance estimate for the year, rather on a higher projection, based on the government’s own assessment. Fiscal deficit in 2017-18 would go up a notch to 3.6%, instead of 3.5% estimated by the Centre, if the CSO’s advance estimate of nominal GDP at Rs 166.28 lakh crore is taken into account. For its part, the finance ministry believes that the CSO may have under-estimated the GDP, as certain latest indicators saw an uptick after the CSO firmed up its growth projection for FY19. Even some analysts say the government’s projection would be closer to reality. But the finance Bill, at a conceptual level, doesn’t suggest the possibility of such a variance in projections by the finance ministry and the CSO.
Earlier, official sources had told FE that while the government was serious about fiscal consolidation, the setting up of a fiscal council could unnecessarily create scope for a divergence of views between the Centre and the council on various aspects of fiscal performance and even the reasons for failure to stick to targets, etc. This, ultimately, could send a wrong and confusing signal to the markets. So, any such decision (whether to set up a fiscal council) must be deliberated upon carefully, they had said. However, to show commitments on fiscal prudence, the government says (through the finance Bill): “Where the fiscal deficit is allowed to vary from the target prescribed under the proviso to sub-section (2) or deviation is initiated under sub-section (4), a statement explaining the reasons thereof and the path of return to annual prescribed targets under this section shall be laid, as soon as may be, before both the Houses of Parliament.”