Fiscal Consolidation & FRBM Act

Fiscal Consolidation & FRBM Act

HOT ISSUES FOR MAINS(TOPIC #6)(SecureIas Initiative)

  • The Fiscal Responsibility and Budget Management Act, 2003 (FRBMA) is an Act of the Parliament of India to institutionalize financial discipline, reduce India’s fiscal deficit, improve macroeconomic management and the overall management of the public funds by moving towards a balanced budget.
  • Committees on Fiscal consolidation include Vijay Kelkar committee(UPA govt 2012-2015) and NK Singh Committee(FRBM Committee)(NDA govt 2016)(use debt as primary target to fiscal policy instead of deficits.The government should target 60% debt-GDP target with a 40% limit for the centre and 20% limit for states to be achieved by 2023 + create an autonomous Fiscal Council with a chairperson and 2 members appointed by central government for four year term. The functions of the fiscal council would be to prepare multi-year fiscal forecasts, recommend changes in fiscal strategy, improve quality of fiscal data and advising the government if it needs to deviate from fiscal targets + government can also deviate from the path on advice of Fiscal Council in cases of national security, war, calamities and collapse of agriculture etc)(The committee recommended that the government should target a fiscal deficit of 3 per cent of the GDP in years up to March 31, 2020 cut it to 2.8 per cent in 2020-21 and to 2.5 per cent by 2023.)
  • Central govt need to lay Medium-Term Fiscal Policy Statement, Fiscal Policy Strategy Statement , the Macroeconomic Framework Statement,and Medium Term Expenditure Framework Statement(added later in 2012) before Parliament along with budget
  • Issues = New targets coming with new committees like given by N. K singh committee + NK Singh committee recommendations and proposed law also don’t make things streamlined. The proposed multiple targets (one for debt, one for fiscal deficit, another for revenue deficit) with their limits would be impossible to concur with. Instead, the centre could be given a target of fiscal deficit of 3% for 3 years and reduce it to 2.5% by 2022-23 with all states adhering to fiscal discipline +
  • Way forward = Improving tax realisation by reducing tax avoidance, eliminating tax evasion, enhancing tax compliance + Enhancing tax GDP ratio by widening the tax base and minimizing tax concessions + Extending Direct Benefit Transfer scheme for more subsidies and better targeting of government subsidies + An autonomous Fiscal Management Review Committee (FMRC) which would conduct an annual independent and public review of FRBM compliance.

By: Sugam Bansal

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