India does not need a fiscal council

Sukumar Mukhopadhyay | Updated on September 08, 2020

There’s no dearth of expertise   -  Getty Images/iStockphoto

There’s the CEA, Economic Affairs Department and NIPFP to assist the Finance Minister. Adding one more body will be superfluous

There are sporadic references to the need for a fiscal council in the Ministry of Finance. As a justification, it is said that the FRBM panel, which was reviewing the Central government’s finances, has recommended the setting up a fiscal council to advise and assess the government’s spending and fiscal policy.

The panel wanted it to be an autonomous body that would report to Parliament. It said that the council will have three set of functions — empirical, analytical and advisory. The Fourteenth Finance Commission had also recommended this. But the government did not implement this. And rightly so. Such a fiscal council will be superfluous and, therefore, pernicious.

A reputed economist has argued that the CAG has pointed out that the fiscal deficit numbers are understated and, therefore, a fiscal council is necessary to correct them. The logic is totally faulty. What is necessary is to have a dialogue with the CAG and come to a conclusion.

Let’s see what the Finance Minister has at her disposal. There are a whole lot of highly qualified economists in the Economic Affairs Department. There is a Principal Economic Advisor and a Chief Economic Advisor, who are both well-known economists. Often, some of the Secretaries in the Economic Ministries are distinguished economists. For very many years, the Secretary in the Department of Economic Affairs and the Finance Secretary had been world-renowned economists.

Then there is the National Institute of Public Finance and Policy, which is an autonomous and specialised institution on fiscal policies. The NIPFP has, over the years, been consulted on fiscal issues. Before introducing the service tax in 1994, basic research was done by NIPFP. And for GST, also, basic inputs were given by the NIPFP at different stages. The Comptroller and Auditor General, with its expert officers, also point out if and when subsidy and expenditure policies go wrong. India also has a Parliamentary body to discuss all policy decisions of the Finance Ministry.

With this kind of expert assistance at the disposal of the Finance Minister, there is no need to create another organisation. If a Finance Minister chooses to ignore all the advisers and only gives peripatetic decisions (as some economists had the chutzpah to point out), then he/she can do the same even if there is a fiscal council. For nothing is binding on the Finance Minister. Also, the Finance Minister should be free to take decisions and not be bound by too many committees and councils, which become nothing but encumbrances.

Solid base

It is said that nearly 40 countries have fiscal councils. So it means that a lot many countries do not have them. The US Congressional Budget Agency is more like our Parliamentary Committee on Finance Ministry. And, we in India have a solid base in the Economic Affairs Department to advise the Finance Minister, which other countries may not have. Merely replicating institutions of other countries has landed India with the Ombudsman, which has proved to be a complete failure.

There is what is called the Occam’s Razor, the principle of which is that a theory based on fewer assumptions is better than one having more. This also is true of organisations dealing with economic affairs. Fewer economists, the better. For they never agree. Each has a different opinion. Even in the FRBM Committee, there has been a lot of dissent.

Thus, the decisions on the fiscal roadmap are not taken hastily. They are taken by the Finance Minister after carefully consulting the Departments of Economic Affairs, Expenditure and Revenue and Chief Economic Advisor and even the NIPFP in some cases. These officers and economists in the Finance Ministry, have enough knowledge of public finance and macroeconomics.

There is no need for adding one more of the same breed. This will only overburden the system. More autonomous institutions we create, the more headache it is for the Finance Minister to take a decision. The government must be complimented for not implementing it.

The writer is a former Member of the Central Board of Excise and Customs

Published on September 08, 2020

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