The Tarapaore committee has asked the central government to create a consolidated sinking fund (CSF). It is one of the essential pre-requisites before the rupee becomes fully convertible.
The creation of CSF would cushion the economy from sinking into an internal debt trap. Besides, it will make fiscal accounting more transparent, the report said.
The current practice of financing the amortisation of government borrowings out of fresh borrowings is clearly unsustainable and this practice would inevitably result in a crisis, says the report.
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The committee has taken a cue from the recommendations of the Tenth Finance Commission, which has recommended the institution of a CSF for public debt.
Justifying the creation of a CSF, the committee says, while it is sometimes argued that a CSF is not meaningful when there is a revenue deficit.
This is as contributions to such a fund would merely increase the revenue deficit, the committee is of the view that a consolidated sinking fund must be introduced as part of a more transparent fiscal system.
The panel urges that any rise in profit transfer from RBI to the government as well as the proceeds from divestment should be used entirely towards building up a CSF.
It feels that any attempt to achieve fiscal consolidation would not be meaningful if the problem of repayment of public debt is not satisfactorily addressed.