Modify FRBM Act but Avoid Activism, Says Eco Survey
Survey says operational framework of law needs to be modified ‘for India of today and tomorrow’
New Delhi: The Economic Survey has called for modifying the Fiscal Responsibility and Budget Management Act, 2003 (FRBM Act) to provide fiscal policy direction for "the India of tomorrow", but cautioned against fiscal activism adopted by the western world to prop their economies.
The country's economic experience shows that the fiscal activism embraced by advanced economies — giving a greater role to counter-cyclical policies and attaching less weight to curbing debt — is not relevant for India, said the pre-Budget document finance minister Arun Jaitley tabled in Parliament on Tuesday.
It said the country's fiscal experience has underscored the fundamental validity of the fiscal policy principles enshrined in the 13-year old FRBM Act.
However, even as the basic tenets of the Act remain valid, the operational framework needs to be modified "for the fiscal policy direction of India of today, and even more importantly the India of tomorrow", the survey said.
“This setting out a new vision through an FRBM for the 21st century will be the task of the FRBM review committee," it said.
Since the 2008-09 global financial crisis (GFC), fiscal policy internationally has seen a paradigm shift from the emphasis on debts to deficits, arguing for greater activism in flows (deficits) and minimising concerns about sustainability of the stocks (debt), the Survey said.
"But India's experience has reaffirmed the need for rules to contain fiscal deficits, because of the proclivity to spend during booms and undertake stimulus during downturns," it added.
Pointing out that India's experience has also highlighted the danger of relying on rapid growth rather than steady and gradual fiscal and prima-
This setting out a new vision through an FRBM for the 21st century will be the task of the FRBM review committee, says survey
ry balance adjustment to do the 'heavy lifting' on debt reduction, the Survey said this “has underscored the fundamental validity of the fiscal policy principles set out in the FRBM”. The Survey's observations assume significance as N K Singhheaded panel last week submitted its four-volume report on modifying the FRBM Act to Jaitley. The five-member panel was tasked to review the FRBM Act 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. “The government will examine the FRBM committee report and take appropriate action," the finance ministry had said.
While announcing the intention of the government to set up a committee to examine the FRBM Act, Jaitley in his last budget speech had said "there is a school of thought which believes that instead of fixed numbers as fiscal deficit targets, it may be better to have a fiscal deficit range as the target, which would give necessary policy space to the government to deal with dynamic situations".