Fiscal bill to fight shy of setting targets

NEW DELHI: The Fiscal Responsibility and Budget Management Bill, 2000, is to be modified significantly to give the government more flexibility vis-a-vis fiscal deficit and revenue deficit targets.
The preamble will altogether drop elimination of the fiscal deficit as the bill’s goal.
The full meeting of the Cabinet on Tuesday will consider the changes proposed by the finance ministry.
The standing committee of parliament on finance had suggested amending the original bill to give the government more flexibility on managing expenditure, after announcing targets.
One key recommendation had been to specify the targets for fiscal deficit and revenue deficit in the subsidiary legislation, rather than in the law itself.
Since rules can be changed by the government without prior parliamentary approval, unlike main provisions of an Act, such an arrangement had been deemed by the standing committee to be more conducive to responsive fiscal policy.
The original bill had fully reflected unqualified condemnation of the fiscal deficit as a source of macroeconomic distability. The standing committee’s views were more attuned to a view of the fiscal deficit as something that needs to be contained but over a business cycle than at every point of an economic cycle.
Such flexibility would allow the government to counter a cyclical downturn with active fiscal policy, whereas rigid targets would make for passive fiscal policy — during a downturn, the wherewithal for fiscal intervention would be found wanting, if the government were forced to stay hemmed within emaciated revenues and pre-fixed loans.
The finance ministry has proposed that the Centre be given more flexibility regarding the conditions under which revenue and fiscal deficit may exceed the limit specified under the prescribed rules of the Bill.