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Charting a new roadmap for the Centre to manage its finances, an expert committee has called for a gradual reduction of the fiscal deficit to 2.5 per cent of the GDP and revenue deficit to 0.8 per cent by 2022-23.
It has also said the Centre should replace the existing Fiscal Responsibility and Budget Management (FRBM) Act, 2003, with a new law and also set up a Fiscal Council.
The recommendations of the expert committee, headed by former Revenue Secretary NK Singh, were made public by the Finance Ministry on Wednesday.
In the current fiscal, the Centre plans to lower its fiscal deficit to 3.2 per cent and the revenue deficit to 1.9 per cent.
The FRBM Committee, set up in May 2016 to review the Centre’s fiscal roadmap, had submitted its four-volume report on January 23 this year. Some of its recommendations were also included in the Union Budget 2017-18, but Finance Minister Arun Jaitley had said that the report would be examined in detail.
“Adopt fiscal deficit as the key operational target consistent with achieving the medium-term debt ceiling,” said the first part of the report, adding that “escape clause” should be used only in specified circumstances, when a deviation of up to 0.5 percentage points from the fiscal deficit target would be permitted.
However, Reserve Bank Governor Urjit Patel, who was also a member of the committee, had said that the deviation should be limited to 0.3 percentage points.
For any deviations, the Centre would be expected to hold formal consultations with the three-member Fiscal Council that would also make multi-year fiscal forecasts for Central and General governments.
The committee has also called for institutional reforms in general government’s fiscal management, including the Centre giving consent to State borrowings under Article 293 of the Constitution and requesting the RBI to issue a consolidated annual prospectus for planned bond and loan issues by each government.
The report also includes a draft Fiscal Responsibility and Debt Management Bill, 2017. The Finance Ministry has sought comments from the public on the report till May 5.
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