New Delhi, Nov 4: The proposed fiscal responsibility act, which seeks to contain fiscal as well as revenue deficit through a self-correcting mechanism during the course of a financial year, will be placed before the Union Cabinet for approval shortly.According to sources, the proposed legislation was discussed by Finance Minister Yashwant Sinha with his new finance secretary Ajit Kumar and other concerned officials here on Friday.The finance minister, the sources said, was keen on introducing the bill during the winter session of Parliament beginning November 20.The act, according to finance ministry officials, will focus on correcting revenue-expenditure imbalances within the financial year, so as to maintain the level of fiscal and revenue deficits fixed at the beginning of the year. This self-correcting mechanism will be the focal point of the proposed Fiscal Responsibility Act, the sources stressed.Currently, the expenditure is fixed at the beginning of the financial year. Once the budget is approved by the Parliament, expenditure is independent of revenue. Also, on the other hand, tax rates are fixed for the year and usually not altered during the course of the year. Experience has shown that while the expenditure invariably exceeds estimates, revenue receipts fall short of the targets.The act will ensure that revenue and expenditure do not remain independent of each other, even after the passage of the annual budget.The adjustments on both sides, the sources said, will be made during the course of the year with a view to maintaining the deficits at pre-determined levels. This will be done by either reducing expenditure or increasing revenue or both during the course of the financial year.The act will empower the government to impose expenditure cuts if the revenue fails to pick up to the desired levels. However, if the expenditure cannot be reduced beyond a point, the deficit position will be rectified by imposing additional taxes, surcharges or cess. On the other hand, if the revenue exceeds expectations, additional funds will be made available for infrastructure development and social sector schemes. Even new schemes can be announced during the financial year.The sources said that the act will permit deviations from the targets because of certain unforeseen developments, like natural calamities, unprecedented rise in prices of petroleum products and war, during the course of a financial year. The government, however, will have to justify variations between budget estimates and revised estimates to the Parliament.The other emphasis will be on transparency and credibility of government data. The sources said that ‘‘our budget is transparent,’’ however, ‘‘the budget-making exercise has to be done in a more credible manner to avoid large deviation between the budget estimates and the revised estimates.’’It was pointed out that all acts of such nature in other countries, especially in New Zealand, emphasised on credibility and transparency of data. In absence of these two prerequisites, the whole exercise would be rendered meaningless. The budget should reflect the true health of the government to permit rectification in a credible manner.
