The government has constituted a committee to draft a fiscal responsibility Bill as part of an exercise to ensure financial prudence at both the Centre and state governments.
The committee will be chaired by the secretary, department of economic affairs with the deputy governor of the Reserve Bank of India as one of the members.
Speaking at a workshop on `Fiscal Responsibility of the Government', deputy governor of RBI, Y V Reddy, said the committee would focus on a medium-term framework for ensuring fiscal controls rather than just the
annual budget.
He said the objectives of the proposed fiscal responsibility legislation would be to ensure macro stability, fiscal sustainability and solvency, elimination of deficit bias, fiscal transparency, fiscal accountability, including penal actions, and autonomy of monetary policy, including limits on access of government to central bank credit.
Finance minister Yashwant Sinha, who had expressed the intention to pilot the fiscal responsibility Bill, had asked the RBI to set up a working group to assist in the preparation of such a legislation some time ago.
Reddy said it was based on the deliberations of this working group that the committee had been set up. However, the RBI working group is yet to provide the technical inputs to this process, he added.
The committee will take decisions on important institutional issues such as whether there was a need to bring about such a legislation through a new constitutional provision or through a separate law, and whether such a Bill should be passed by Parliament to cover the Centre only or the states as well by obtaining necessary authorisations.
In addition, the committee was also expected to consider whether the convention of secrecy of the budgetary process was consistent with the most significant aspect of the Bill, namely transparency, Reddy said. Therefore it has been argued that the secrecy is not warranted, he added
The RBI working group had also raised some accounting issues, which included budget coverage, adoption of accrual system, projects or medium term parameters, valuation of assets at market value and valuation of foreign exchange liabilities at current rate of exchange, he said.
Reddy said the committee would also take into account that fiscal discipline prescribed in the Bill would severely impact the states in view of the overhang of the past. Consequently, the proposal envisages the need for delineation of a transition path from the current situation to full-fledged fiscal responsibility lasting over several years.
