The N.K. Singh panel to review India’s fiscal discipline rules has recommended:
- Debt-to-GDP ratio of 38.7% for the central government, 20% for the state governments together by financial year 2022-23
- Fiscal deficit of 2.5% of GDP (gross domestic product) by financial year 2022-23
- Enacting a new Debt and Fiscal Responsibility Act after repealing the existing Fiscal Responsibility and Budget Management (FRBM) Act
- Creating a fiscal council
- debt-to-GDP ratio for the central government was 49.4%
- fiscal deficit at 3.5% of GDP
The government is hoping to end 2017-18
with a fiscal deficit that is 3.2% of GDP, marginally higher than the 3% mentioned in the FRBM Act.
The proposed three-member fiscal council will prepare multi-year fiscal forecasts for the central and state governments (together called the general government) and provide an independent assessment of the central government’s fiscal performance and compliance with targets set under the new law.
The committee favours a:
- debt-to-GDP ratio of 60% for the general government by 2022-23
- 40% (38.74%) for the central government and
- 20% for state governments.
Within the framework, the committee has recommended adopting fiscal deficit as the key operational target consistent with achieving the medium-term debt ceiling, at 3% of GDP for three years, between 2017-18 and 2019-20.
Revenue deficit-to-GDP ratio has been envisaged to decline steadily by 0.25 percentage points each year from 2.3% in 2016-17 to 0.8% in 2022-23.
The panel has introduced escape clause triggers that can allow 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.
While the committee has recommended that deviations from the stipulated fiscal targets should not be more than 0.5%, the Reserve Bank of India governor Urjit Patel was not in favour of such a large deviation. Mr Patel, who was also a member of the panel along with Chief Economic Adviser Arvind Subramanian, was inclined to only permit a 0.3% deviation from the target.
The escape clause can also be triggered if real output growth in the economy slips by 3 percentage points from the average of the previous four quarters.
A similar buoyancy clause has been proposed, so that fiscal deficit must fall atleast 0.5% below the target if real output grows 3% faster than the average of the last four quarters.