Govt sets up FRBM committee on fiscal deficit range

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New Delhi | Published: May 17, 2016 9:47:56 PM

The government today formed a five-member committee under former revenue secretary N K Singh to review the working of the 12-year old FRBM Act...

The government today formed a five-member committee under former revenue secretary N K Singh to review the working of the 12-year old FRBM Act and examine the feasibility of a fiscal deficit range instead of a fixed target.

The other members of the committee, which was announced by Finance Minister Arun Jaitley in his Budget speech, include former finance secretary Sumit Bose, Chief Economic Advisor Arvind Subramanian, RBI Deputy Governor Urjit Patel and NIPFP Director Rathin Roy.

The committee will submit its report to the government by October 31, 2016, the finance ministry said.

Among other things, the committee will examine the need and feasibility of having a ‘fiscal deficit range’ as the target in place of the existing fixed numbers (percentage of GDP) as the goal.

The committee, the Finance Ministry said, will review the working of the Fiscal Responsibility and Budget Management (FRBM) Act over last 12 years and suggest the way forward “keeping in view the broad objective of fiscal consolidation and prudence and the changes required in the context of the uncertainty and volatility in the global economy”.

It will also look into various aspects, factors, considerations which go into determining the FRBM targets. The committee will also examine the need and feasibility of aligning fiscal ‘expansion or contraction’ with ‘credit contraction or expansion’ in the economy.

While announcing the intention of the government to set up a committee to examine the FRBM Act, Jaitley in his Budget speech in February had said “there is a school of thought which believes that instead of fixed numbers as fiscal deficit targets, it may be better to have a fiscal deficit range as the target, which would give necessary policy space to the government to deal with dynamic situations”.

The committee, the ministry said, will also make its assessment and provide its views on the expected impact of its recommendations on the general government deficit and other parameters.

The FRBM review committee will seek to settle the debate whether government can opt for higher fiscal deficit to boost economic growth.

Before presentation of the Budget for 2016-17, several economists had suggested that the government should breach the FRBM fiscal deficit target of 3.5 per cent and increase public spending to boost growth. Deficit in 2015-16 is estimated at 3.9 per cent.

Jaitley, however, decided to stick to the deficit target, but announced setting up of a committee to examine the feasibility of a fiscal deficit range instead of a target.

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