No one is afraid of fiscal responsibility

the economy hits, while trundling downhill, a stumbling block in the shape of an irresponsible report of the parliamentary standing committee on finance, veers off the narrow path of fiscal rectitude and hurtles headlong into a chasm of endless borrowing — this is the picture thrown up by some reports of the standing committee's recommendations on the fiscal responsibility bill. such a picture greatly overstates the damage. the standing committee's recommendations have not diluted fiscal responsibility to homeopathic proportions and it is possible for the finance ministry to amend the bill to accommodate the spirit of the standing committee's recommendations without sacrificing fiscal discipline. an analysis of the committee's recommendations shows why. the committee has suggested six modifications to the bill. the first recommendation is that the scope of the annual budget, for purposes of fiscal discipline and budget management, should not be limited to the annual financial statement that the government presents to parliament, but extend to supplementary, additional or excess demands for grants. this is a sensible suggestion that can easily be accommodated. so is the final recommendation: a constructive dialogue should be initiated with the state governments so as to urge them on to the path of fiscal discipline. considering that macro economic stress is the product of not just the centre's borrowings, but of the gross public sector borrowing requirement in relation to private savings available after meeting private sector investment, this is an eminently sensible suggestion. while the centre's fiscal deficit this year is likely to be under 6 per cent of gdp, total public sector borrowings including the state governments' combined fiscal deficit would be in excess of 11 per cent of gdp, making india one of the worst performers in world rankings on fiscal discipline. the second recommendation is that the bill should have only one definition of the fiscal deficit, whereas it contains two. since the two definitions are equivalent and adoption of either definition does little to change the economic content or operational imperatives of the bill, this recommendation also can be accepted without any difficulty. the third recommendation refers to the macroeconomic framework statement that the bill requires the government to place before parliament along with two other documents — a medium-term fiscal policy statement and a statement on the strategy to be followed to pursue that strategy — while presenting the budget. the committee observes that while the bill specifies the contents of the fiscal policy and strategy statements, it is silent on the required parameters of the macroeconomic framework statement.

No one is afraid of fiscal responsibility

THE ECONOMY hits, while trundling downhill, a stumbling block in the shape of an irresponsible report of the parliamentary standing committee on finance, veers off the narrow path of fiscal rectitude and hurtles headlong into a chasm of endless bo...

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