After Finance Minister Arun Jaitley’s Budget announcement, the government has constituted a five-member committee to comprehensively review and give recommendations on the FRBM (Fiscal Responsibility and Budget Management) roadmap for the future. The panel will comprise NK Singh as the chairman, former Finance Secretary Sumit Bose, Chief Economic Adviser Arvind Subramanian, RBI deputy governor Urjit Patel and NIPFP director Rathin Roy. What’s important, the panel is mandated to review the working of the FRBM Act over the last 12 years and suggest the way forward keeping in view the broad objective of fiscal consolidation and prudence and the changes required in the context of the uncertainty and volatility in the global economy. The panel will look at the feasibility of having a fiscal deficit ‘range’ as the target, in place of the existing fixed numbers as a percentage of GDP. Speaking to Bloomberg TV India , Arvind Subramanian says the fiscal deficit range is just one aspect of the terms of reference as the panel will do a comprehensive update of the decade-old FRBM Act.

Why is there a need to amend the FRBM Act now that the fiscal deficit is coming down? What are the main aspects the committee will look into?

I think you should see this as an effort for trying to update, obviously, not just the FRBM Act, but also broadly update the fiscal framework we have. A lot has happened in the last 12 years within India. A lot has happened internationally in terms of what countries do, which we can usefully learn from. How should we think about medium term fiscal policy? What target should we have? Should it be a debt target or fiscal deficit target? Should it be cyclically adjusted, point or range? What is the role of the rules? What is the role of discretions? All of these things have to be addressed. It’s really a comprehensive updating of the fiscal framework.

In the terms of reference, the government has mandated the FRBM committee to look at a range of fiscal deficit targetHas a range of fiscal deficit received global precedence? How far is a range a feasible option?

I think you shouldn’t focus on any one particular aspect of the terms of reference because it’s going to be a comprehensive update. This (range of fiscal deficit) is one aspect we will look into — what is the international practice, what are the pros and cons. But this is only one aspect. The exercise is going to be much broader than that.

When will the first meeting of the FRBM committee be held?

We haven’t fixed a date. But we will meet soon because we have a deadline at the end of October. There is a lot to do. As I said, we have to understand how it (FRBM Act) has worked in the last 12 years. What will India look like in terms of its macro and fiscal situations, in terms of its strategies going ahead and how the fiscal policy fits into that, and the international experience? Remember, since we enacted the FRBM, we have been through three phases globally — we had a period when the world economy was doing well until about 2000, then we had the global financial crises, and now the post-crisis phase. So a lot has changed on how we understand macroeconomics and fiscal policy internationally. So we should draw lessons from that and benefit from that.

FRBM is a very sensitive subject when it comes to global ratings perspective. How do you think the ratings agencies will view this review of the FRBM Act?

I think it should be seen as a very desirable and welcome step to improve the fiscal governance. It is one thing to say what will be the fiscal deficit target for any particular year, but quite different to see what should be the framework for fiscal policy. And the fact that we need to be doing this absolutely overdue updating should be really welcomed as another exercise in improving overall governance, and in this case it is fiscal governance.

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