 "Fiscal deficit range may be set at 30-40 bps")
A committee to review the recommendations of the Fiscal Responsibility and Budget Management Act (FRBM), to be set up by the finance ministry, may be tasked with making the case for a 30-40-basis-point range for the fiscal deficit target over a medium term, after it examines a number of indicators.
Such indicators and trends will include the global macroeconomic situation and global growth forecasts, the government’s debt situation and India’s debt market, household savings and consumption, lending activity of the banks, the Centre and states’ expected spending commitments and projections on India’s tax-GDP ratio over the next four-five years, Business Standard has learnt.
Senior government sources said the committee was likely to have up to 10-12 members with a majority of them being independent economists and policy experts and the rest being government officials. They said the Centre was about to start with the process of appointing members to the panel and an announcement on the matter could be made soon.
The points mentioned above will be part of the committee’s terms of reference, which are being finalised.
For 2015-16, the government achieved a fiscal deficit target of 3.9 per cent of gross domestic product and is projecting a target of 3.5 per cent for 2016-17.
In his Budget speech, Finance Minister Arun Jaitley had said a panel would be set up to look at the feasibility of a range for fiscal deficit targets instead of absolute numbers, as is the practice now. He had said there was a school of thought that proposed instead of fixed numbers as fiscal deficit targets, it might be better to have a range, which would provide the government with the flexibility and policy space to deal with dynamic situations. “There is also a suggestion that fiscal expansion or contraction should be aligned with credit contraction or expansion. I, therefore, propose to constitute a committee to review the implementation of the FRBM Act and give its recommendations on the way forward.”
Economic Affairs Secretary Shaktikanta Das had said in March the panel would be formed within a month’s time.
A senior official said: “There needs to be flexibility for the government when it comes to fiscal deficit targets. Global macroeconomic volatility is here to stay and it has a direct bearing on all aspects of India’s economy. This committee will be tasked with providing that flexibility with a medium-term timeframe in mind.”
To recommend an acceptable range, the panel would have to look at a large number of global and domestic trends, the person added. Apart from the volatile situation, the panel would study India’s tax-GDP ratio projections and expected spending thrust areas of the government, the official said.
