In order to step up public expenditure to battle economic slowdown, the government should suspend the Fiscal Responsibility and Budget Management (FRBM) Act for two years, said Planning Commission member Abhijit Sen.
“The FRBM restrictions should be removed for at least two years,” he told reporters on the sidelines of a seminar on fiscal policy.
According to the FRBM Act, the government is required to follow fiscal prudence and eliminate the revenue deficit and bring down the fiscal deficit to 3 per cent by the end of the current fiscal.
The then finance minister P Chidambaram has sought one more year to eliminate the revenue deficit, and in his budget for 2008-09 proposed to bring down the fiscal deficit to 2.5 per cent of Gross Domestic Product (GDP) from 3.1 per cent in the previous fiscal.
Noting that the government is under a lot of pressure to shore up its accounts, Sen said fiscal stimulus is necessary to induce demand and “it does not matter who is spending, the Centre or the state”.
The government, he added, faces pressure from international credit rating agencies, which closely track public debt and assign ratings that often raise the cost of borrowing from the international market.
While unveiling the Rs 30,700 crore fiscal stimulus package yesterday, Planning Commission Deputy Chairman Montek Singh Ahluwalia said that the fiscal deficit in the current year will be higher than what had originally been estimated in the budget.
Even Chidambaram had said “this is not the year to talk about fiscal deficit”. The budget proposed to bring down revenue deficit to 1 per cent and fiscal deficit to 2.5 per cent.
