The government is in favour of setting up a council to monitor fiscal announcements, provide forecasts and analysis, and recommend deviations under certain circumstances.
The Fiscal Responsibility and Budget Management Committee, in a report to Finance Minister Arun Jaitley before Budget 2017-18, suggested setting up such a panel. The report was made public this month and the government has sought feedback from the public till May 5. The FRBM committee, headed by former MP N K Singh, also recommended a fiscal deficit target of 2.5 per cent of the gross domestic product, revenue deficit of 0.8 per cent and a combined Centre-state debt ceiling of 60 per cent by 2022-23, the end point of its six-year medium term fiscal road map.
These recommendations form part of the draft Debt Management and Fiscal Responsibility Bill, which, if passed, will replace the Fiscal Responsibility and Budget Management Act.
“A fiscal council will be good for discourse and will make budget-making more efficient,” said a finance ministry official. “Deliberations will take place after we receive comments from the public. The final decision will be taken by the finance minister,” the official added.
“We foresee the council will serve both an ex-ante role — providing independent forecasts on key variables like real and nominal GDP growth, tax buoyancy, commodity prices — as well as an ex-post monitoring role, and also serve to advise on triggering the escape clause and a path of return,” the report said. The FRBM committee has provided clauses for deviation from the fiscal road map by 0.5 per cent in any year. The clauses are proposed for war, national calamities, and the collapse of agriculture.
They are also proposed for “far-reaching structural reforms in the economy with unanticipated fiscal implications” and if a sharp decline occurs in real output growth of at least 3 percentage points below the average of the four preceding quarters.
The committee recommended a fiscal council after studying examples of 40 economies. It proposed the council as an autonomous body under the finance ministry.
“It should comprise a chairperson and two members to be appointed by the central government. The persons to be appointed ought to have significant experience in public finance, economics or public affairs,” the committee said.
“To ensure they function independently, such persons should not be in the current service of the government, should have a non-renewable term of four years and non-diminishing salaries while in office, and their appointment should be capable of termination only on limited grounds,” it added.
Members of the FRBM committee included former finance secretary Sumit Bose, RBI Governor Urjit Patel, Chief Economic Advisor Arvind Subramanian, and Rathin Roy, director of the National Institute of Public Finance and Policy.
