The government panel set up to review the working of FRBM Act has sought views of the Reserve Bank on the fiscal consolidation path and will submit its report next month.
In May, the government formed a five-member committee under former revenue secretary N K Singh to review the working of the 12-year old FRBM Act and examine the feasibility of a fiscal deficit range instead of a fixed target. “The FRBM Panel is likely to submit report by January 13. The panel has sought RBI’s view on fiscal consolidation path,” sources said.
The Committee was originally slated to submit its report by October 31, but exceeded the time table after the government expanded their scope of work to include examination of the recommendations of 14th Finance Commission as also of the Expenditure Management Commission (EMC).
The panel may also suggest deviating from the current 3% fiscal deficit target in 2017-18 and suggest a specific target for fiscal deficit instead of range, the sources added. The other members of the committee, which was announced by Finance Minister Arun Jaitley in his Budget speech, include former finance secretary Sumit Bose, Chief Economic Advisor Arvind Subramanian, the then RBI deputy governor Urjit Patel and NIPFP Director Rathin Roy. Sources, however, said the panel report is unlikely to be made public until Budget.
Among other things, the Committee will examine the need and feasibility of having a ‘fiscal deficit range’ as the target in place of the existing fixed numbers (percentage of GDP) as the goal. The committee was set up to review the working of the Fiscal Responsibility and Budget Management (FRBM) Act over the last 12 years and suggest the way forward “keeping in view the broad objective of fiscal consolidation and prudence and the changes required in the context of the uncertainty and volatility in the global economy”.
While announcing the intention of the government to set up a committee to examine the FRBM Act, Jaitley in his Budget speech in February 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”.
Before presentation of the Budget for 2016-17, several economists had suggested that the government should breach the FRBM fiscal deficit target of 3.5% and increase public spending to boost growth. Deficit in 2015-16 is estimated at 3.9%.
Jaitley, however, decided to stick to the deficit target, but announced setting up of a committee to examine the feasibility of a fiscal deficit range instead of a target.