FRBM report: ‘Govt should keep primary deficit as its fiscal target’

The reasoning given by Subramanian on targetting primary deficit was not immediately clear. The government has not made the report public, possibly since its recommendation are expected to be incorporated in the Budget on February 1.

Economists expect the government to redraw its fiscal roadmap, as it seeks to stimulate the economy through higher spending in the budget. The government may postpone the planned reduction in fiscal deficit to 3 per cent of Gross Domestic Product in 2017-18
Subramanian did not comment when reached by The Indian Express. Another member of the committee, former finance secretary Sumit Bose said: “This is like a budget document now. I cannot speak on it.”

When asked about Subramanian’s dissent, Bose said: “There is one dissent note (as part of the report) and there is a rejoinder to it.” Singh could not be immediately reached for the story.

Primary deficit, is the level of fiscal deficit once interest costs are set aside. It is a measure of current year’s fiscal operation after excluding the interest payments arisen due to borrowings undertaken in the past.

The five-member panel was tasked to review the working of the FRBM Act over the last 13 years, in view of suggestions that there should be a broad range for government’s fiscal deficit in place of the current practice of having a fixed target.

In its four volume report, the committee to review the Fiscal Responsibility and Budget Management (FRBM) Act has given little headroom to the government to deviate from the consolidation path, even as it suggested strengthening institutional framework on fiscal matters. The members of the FRBM Committee felt that it would be prudent to stick with the fiscal deficit, as a reliable parameter to assess the government’s fiscal health, the sources said.

“Since interest costs comprise a large chunk of the total expenditure, and these have been rising over the years, any benchmark on fiscal consolidation should account for these,” a government official said. India spent Rs 4.57 lakh crore on total interest payments in 2015-16, while its fiscal deficit was Rs 5.85 lakh crore. Primary deficit as a percentage of 0GDP gradually declined from 2.64 per cent in 2011-12 to 0.94 per cent in 2015-16. However, it was higher as compared to 0.73 per cent in 2014-15. Fiscal deficit for 2015-16 was 3.9 per cent of GDP, which is estimated to slide down to 3.5 per cent in the current year.