The finance ministry is likely to constitute a committee of up to six members to review the implementation of the Fiscal Responsibility and Budget Management (FRBM) Act. The panel, the formation of which was announced in the Budget, could also co-opt representatives from states and have selected economists on board.
“The committee will have 5-6 officials from the finance ministry itself. It is also likely to co-opt 4-5 representatives from states along with 1-2 academicians/economists,” a senior ministry official said. There will be 4-5 representatives from states, especially from those states which have adhered to the FRBM limits and have shown fiscal prudence in recent financial years, the official said. Along with examining the possibility of a fiscal deficit range as the target, the committee will also look into the scope of focusing more on the absolute number of the fiscal deficit than the percentage.
“While fixing the fiscal deficit target, a certain rate of nominal growth is assumed for next financial year over the advance estimates of GDP by CSO, but the actual nominal growth may vary from the assumption and thus, impacts the calculations of fiscal targets later. The FRBM committee will look into removing this anomaly along with fine tuning other assumptions which are made while framing the fiscal targets,” the official added.
Last month, the then Finance Secretary Ratan Watal had said that the views of states had been sought for the FRBM committee as states are the majority stakeholders in the process. “It’s a statement of the Budget that has to be converted to a plan of action and the process has started. We have done the consultation process and state governments are major stakeholders and we must have their views and we must keep them on board. It will eventually go to Cabinet,” Watal had said after the second conference of state finance secretaries.
While presenting the Budget for 2016-17, though finance minister Arun Jaitley had stuck to the fiscal consolidation roadmap, he had announced setting up of a committee to review the FRBM Act to examine the possibility of a fiscal deficit range as the target, instead of the current practice of fixed numbers as targets.
“While remaining committed to fiscal prudence and consolidation, a time has come to review the working of the FRBM Act, especially in the context of the uncertainty and volatility which have become the new norms of global economy,” Jaitley had said, adding that the proposed committee will look into whether fiscal expansion or contraction should be aligned with credit contraction or expansion in the economy.
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