Fiscal deficit

The Finance Minister has constituted a committee to advise him on fiscal consolidation. Besides dealing with the problems of the current year it may examine the matter from the long-term point of view also. In this connection, I would like to reiterate a suggestion made by me in the past.

At present the target for fiscal deficit is linked to Gross Domestic Product. The limitation is that the GDP figures are not available in time and are not firm as they are subject to revision, sometimes of a large magnitude. The year would have run out before the final estimates are ready for taking corrective steps.

I recommend that the fiscal deficit may be related to the latest final (accounts) figure of revenue receipts in the Budget. They are available with a time lag of a year or so. It will provide an incentive for government to improve on tax mobilisation. The idea is not novel. I saw this as a feature in the Budget of Sierra Leone in West Africa during my IMF assignment as an advisor to the Governor of the central bank of that country.

A. Seshan

Mumbai

Undermining RBI

Any domination or interference of the Central government in the functioning of the central bank of the country (‘Govt should not undermine RBI’, Business Line, August 11) may not be in the interests of the economy as a whole. If legislations such as Fiscal Responsibility and Budget Management Act and relevant provisions in our Constitution are adhered to by the Government, no friction can arise.

K. Gopalan

Bangalore