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The Fiscal Responsibility and Budgetary Management (FRBM) Act, which is being reviewed under the chairmanship of N K Singh, would act in tandem with the inflation targeting of Monetary Policy Committee (MPC).
“FRBM is to act in tandem with the inflation targeting of MPC. The idea is to ensure resource flow to the economy,” Singh said at an interaction at MCCI here today.
He added that if the two did not act in tandem, in case of fiscal profligacy, RBI would follow a tight monetary policy which is not investment friendly and vice-versa.
The MPC has set an inflation target of 4 per cent with an upper tolerance level of 6 per cent and lower limit of 2 per cent.
Singh said the FRBM panel is deliberating on what would be the path forward in terms of debt sustainability and fiscal rectification.
The 14th Finance Commission had recommended 3 per cent fiscal deficit for the Centre and another 3 per cent for the states yielding a combined fiscal deficit of 6 per cent for the period 2015-16 to 2019-20.
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