FRBM panel moots fiscal council; budget planners cold to idea

FRBM committee report sets a roadmap to achieve fiscal deficit of 2.5% of GDP by 2023

The Fiscal Responsibility and Budget Management (FRBM) committee has suggested setting up a fiscal council to oversee and verify the credibility of the government’s budget numbers and fiscal targets for any given year. 

While the political leadership at the Centre is said to be comfortable with the idea, the bureaucracy is reportedly against it.

The FRBM committee, headed by former Member of Parliament and former Revenue and Expenditure Secretary N K Singh, had submitted its report to Finance Minister Arun Jaitley on January 23. 

The report, which lays out a road map to achieve a fiscal deficit of 2.5 per cent of gross domestic product by 2023, could be made public before March 9, the day Parliament reconvenes for the second half of the Budget session, Business Standard has learnt.

Sources say that according to the committee’s report, the fiscal council, which, advisedly, will consist of non-government economists and experts, will be tasked with assessing whether the budgeted estimates announced in any given year are credible and achievable. Such an exercise can either be ex-ante (during the Budget preparation) or ex-post (once the Budget is presented).

“Take the example of disinvestment targets. They are never met. Are they always unrealistic and should the government budget for lower, achievable targets? The credibility of such numbers is what a fiscal council will deal with,” said an official aware of the developments.

If such a council is set up, it will study the credibility and feasibility of all numbers including tax targets, spending on various schemes and subsidies, capital spending, the fiscal deficit and revenue deficit targets, non-tax revenue, among others.

A second official said this particular proposal had been discussed in the Prime Minister’s Office as well. He added that the political leadership in charge of economic policymaking was likely in agreement with the idea of such a body. However, a number of senior bureaucrats had not yet warmed up to it.

Sources said that the FRBM panel’s idea of a fiscal council stems from the fact that close to 80 countries have similar outfits to provide oversight to federal budgets and fiscal targets. In nearly 35 of these countries, such councils have complete autonomy and in some cases decide the parameters within which the country will have to prepare its budget.

The panel is learnt to have suggested a softer version, which comes under the finance ministry, and wherein the finance minister of the day can ignore the council’s observations on the feasibility of his budgeted targets. “The idea is to provide a counterview to the budget makers’ claims. This will lead to greater transparency,” the first official said

The panel had in its report recommended a fiscal deficit target of three per cent for the period 2017-18 to 2019-20. In his Budget speech, Jaitley said that the Centre was targeting 3.2 per cent for 2017-18 but will likely maintain 3 per cent in 2018-19 and 2019-20.

Other members of the FRBM panel include former Finance Secretary Sumit Bose, RBI Governor Urjit Patel, Chief Economic Advisor Arvind Subramanian, and Rathin Roy, who is director of the National Institute of Public Finance and Policy.

As reported in Business Standard earlier, the panel is also expected to recommend certain ‘excuse clauses’ under which extra spending is necessary. Such conditions could include macroeconomic headwinds or slowdown, natural disasters like droughts or in case of war.

The second official quoted above said that the fiscal panel would examine if the Centre invoking an excuse clause in any given year was a valid enough excuse to not meet the fiscal deficit target that year.

A quick study

• Fiscal council to study feasibility and credibility of Union Budget
• FRBM panel proposes fiscal council to study every aspect of Budget targets
• Council observations not binding on the government
• FRBM panel observes nearly 80 nations have similar set-up
• Sources say political leadership mulling proposal; bureaucrats not keen
• Fiscal council could author the medium- term fiscal framework for every Budget