FinMin to soon present FRBM views to Modi WHAT’S ON THE TABLE?
With new secy taking charge, work to hasten on draft for new fiscal law; tentative aim to have a Bill introduced in winter session
With a new economic affairs secretary, the central government will hasten work on the recommendations of the committee on redrawing the Fiscal Responsibility and Budget Management (FRBM) law.
Finance ministry officials are expected to make a presentation to Prime Minister Narendra Modi on the proposed fiscal road map till 2022-23, this publication has learnt.
Subhash Garg took charge on Wednesday as secretary of the Department of Economic Affairs, which includes the Budget division. His predecessor, Shaktikanta Das, had retired on May 30. Between then and now, Corporate Affairs Secretary Tapan Ray had additional charge.
“The FRBM panel has given important recommendations which will be fed into the Budget. Very soon, we will come up with a decision. We are committed to fiscal consolidation and will follow calibrated measures to bring down the deficit,” said a ministry official.
Senior sources said the aim is a new FRBM Bill in Parliament’s winter session. A presentation is to be given to Modi by the end of this month. The presentation will be on the recommendations of the FRBM panel and on Chief Economic Advisor Finance ministry plans to table new FRBM law in Parliament’s winter session Presentation on FRBM panel and Centre’s views to be made to Prime Minister Narendra Modi Modi to be briefed on panel recommendations by the end of this month Three contentious issues face Centre on FRBM recommendations The issues are fiscal deficit versus primary deficit, escape clauses and the fiscal glide path Arvind Subramanian’s dissent note, as well as the Centre’s own other views.
An official said the Centre concurred with the panel’s recommendation to bring down the combined Centre-states debt to gross domestic product (GDP) ratio to 60 per cent by FY23. However, there are contentious issues on how to get there. While the panel suggests sticking with the fiscal deficit as the main target, Subramanian suggests the focus be on reducing the primary deficit. The other issues are on the glide path and the escape clauses.
The panel itself has recommended a fiscal deficit target of 2.5 per cent of GDP and revenue deficit of 0.8 per cent for 2022-23, the end point of its six-year medium-term fiscal road map. Other recommendations include setting up of a Fiscal Council and giving the government tightly defined escape clauses for deviating from the schedule.
“I would propose a simpler architecture, comprising just one objective: Placing debt firmly on a declining trajectory. To achieve this, the operational rule would aim at a steady but gradual improvement in the general government primary balance (non-debt receipts minus non-interest expenditures), until the deficit is entirely eliminated,” Subramanian wrote in his dissent note.
While keeping a strict glide path to FY23, the FRBM panel has provided flexibility to the Centre by framing escape clauses to deviate from the schedule by up to 0.5 per cent for any year, under defined circumstances. The clauses are proposed for over-riding considerations of national security like acts of war, calamities and collapse of agriculture.