Hold fiscal deficit at 3% till FY20, says N.K. Singh panel

The Centre can take a pause on the fiscal consolidation front over the next three years by maintaining a fiscal deficit to GDP ratio of 3% till 2019-20, the Fiscal Responsibility and Budget Management (FRBM) Review Committee chaired by former Revenue Secretary N.K. Singh has recommended.

Source: Business Line

Recommendations:

• The panel has advocated reaching a fiscal deficit to GDP ratio of 2.8% in 2020-21, 2.6% the subsequent year and 2.5% in 2022-23 (To put that in context, the government has set a fiscal deficit target of 3.2% of GDP in 2017-18, marginally better than the 3.5% clocked last year.)
• The panel has introduced an escape clause that allows the government to skip the fiscal deficit target for a particular year, in situations that include national security concerns, acts of war, national calamities, a collapse of the agriculture sector and far-reaching structural reforms with unanticipated fiscal implications.
• It recommended that deviations from the stipulated fiscal targets should not be more than 0.5%.
• The escape clause can also be triggered if the economy’s real output growth slips by three percentage points from the average of the previous four quarters.
• A similar buoyancy clause has been proposed, so that fiscal deficit must fall at least 0.5% below the target if real output grows 3% faster than that average.
• The panel has recommended that the existing FRBM Act and rules be scrapped and a new Debt and Fiscal Responsibility Act be adopted and proposed the creation of a Fiscal Council that the government must consult before invoking escape clauses.

The FRBM law enacted in 2003 had originally envisaged attaining a fiscal deficit of 3% of GDP by 2008-09, but amendments over the years had revised the year for achieving the same target to 2017-18.