FRBM targets do not really matter: Montek

The face-off between the finance ministry and the Planning Commission on resources for the 11th Five-Year Plan took a new turn with Planning Commission Deputy Chairman Montek Singh Ahluwalia asserting that the emphasis should be more on providing additional resources rather than on tightening the belt to contain deficits.

"We really do not care for FRBM (Fiscal Responsibility and Budget Management Act) targets so long as we get the money (for the planned programmes)," Ahluwalia said responding to a letter from Finance Minister P Chidambaram who was not in favour of shifting goal posts of the FRBM to provide more resources for the 11th Plan as suggested by the commission.

"In the present milieu, adhering to the FRBM targets in respect of fiscal deficit and revenue deficit is critical for macroeconomic, financial, external sector and budgetary sustainability. Fiscal discipline remains the major factor in determining the investment," Chidambaram had said.

Under the FRBM Act, the government is committed to reducing fiscal deficit by 0.3 per cent of the GDP and revenue deficit by 0.5 per cent annually in a bid to wipe out revenue deficit and bring down fiscal deficit to 3 per cent of the GDP by 2009.

"We are just bothered about the resources for the 11th Plan," Ahluwalia, who got full support for his approach from HRD Minister Arjun Singh, said. Singh recently wrote to Ahluwalia saying "indeed this (FRBM) Act has put artificial capacity on the economy to invest more in poverty alleviation programme as well as much needed investment in agriculture which is the primary cause of the current agrarian distress".

But the finance minister did not subscribe to the commission's suggestion in the approach paper to the Eleventh Plan that revenue deficit target should be diluted to enable more allocation of funds for plan programmes.

Chidambaram said on the contrary, there should be stricter FRBM targets for states on revenue and fiscal deficits so that there was less pressure on them for higher borrowings for asset creation.

"Any postponement of the FRBM targets would, as suggested in the approach paper, further erode the credibility of the government. It is, therefore, imperative that FRBM targets are met as stipulated in the FRBM Rules, 2004," Chidambaram argued.