“CENTRE WILL HAVE TO PUT ITS HOUSE IN ORDER (ON FINANCES). IN THE INITIAL YEARS OF THE FRBM, THE STATES DID BETTER”
On Wednesday, the finance ministry released the report of an experts committee that reviewed the Fiscal Responsibility and Budget Management (FRBM) Act. Ishan Bakshi spoke to former revenue secretary N K SINGH, who chaired the panel, to understand its finer details. Edited excerpts:
The FRBM review committee has recommended a debt to GDP ratio of 60 per cent for general government (centre and states combined) by 2023. This comprises 40 per cent for the Centre and 20 per cent for state governments. But, given the current debt levels, does adopting this path mean that the burden of reducing the debt falls squarely on the Centre?
In the years to come, the Centre will have to put its house in order. In the initial years of the FRBM, states did better. They were helped by centrally sponsored schemes and by debt relief. But, they made a sincere effort to put their finances in shape. State government finances are better than the Centre, though there has been some deterioration of late. But now, in the initial years, the Centre will have to bring down its debt.
The review committee has recommended maintaining the fiscal deficit at three per cent of GDP between FY18 and FY20. Does this give the finance minister leeway to keep the deficit at 3.2 per cent in his next budget?
No. In the latest budget, the finance minister stated that he
STATE GOVERNMENT FINANCES ARE BETTER THAN THE CENTRE, THOUGH THERE HAS BEEN SOME DETERIORATION OF LATE. BUT NOW, IN THE INITIAL YEARS, THE CENTRE WILL HAVE TO BRING DOWN ITS DEBT
was committed to bringing down the deficit to three per cent next year.
The report mentions certain escape clauses under which the government can deviate from the path of consolidation. One such clause is structural reforms in the economy. Can events like GST or demonetisation constitute such reforms?
I don’t know. That’s for the sovereign to decide. But there is a rider. The event should not only have far-reaching structural changes in the economy but also have unanticipated revenue consequences. So there are two conditions to be fulfilled.
Will the proposed Fiscal Council be modelled on the lines of the Congressional Budget Office in the US?
The Fiscal Council should be an autonomous body. It may not be outside the ministry of finance. It can be set up under the aegis of the MoF. It should develop the analytical capabilities. It should also render advise to the government. In most countries such a council exists.
Chief Economic Advisor Arvind Subramanian has written a dissent note. He seems to be in favour of using the primary deficit as indicator. What are your views?
The primary deficit is nothing but the fiscal deficit excluding interest. And interest payments are our biggest problem. The other issue is that a reduction in primary deficit is neither a necessary nor a sufficient condition for debt to decline.