Revised diet chart for fiscal health

NEW DELHI: The government will reaffirm its resolve to achieve fiscal health at the earliest by committing itself to new goalposts through a change in the law.

It is planning to amend the Fiscal Responsibility and Budget Management Act to commit to new targets that may now be achievable only by 2015.

“The new law will largely be in keeping with the recommendations of the Thirteenth Finance Commission,” a finance ministry official said.

Finance ministry has accepted the panel’s recommendations on fiscal deficit, but is still studying the suggestions on revenue deficit.

The Thirteenth Finance Commission had suggested that the Centre should reduce its fiscal deficit to 3% of the GDP and erase its revenue deficit by 2013-14.

The government has, however, conceded that it might be difficult to completely eliminate the revenue deficit and achieve revenue surplus by 2015. It has pegged the revenue deficit at 2.7% of the GDP in 2012-13. The target year for wiping out revenue deficit may be pushed back by another year.

The finance ministry is also considering reclassification of the government accounts through a tighter definition of revenue to exclude all the expenditure that is in the nature of capital expenditure. Any such change in classification will also help bring down the revenue deficit.

The amendments are also likely to reflect the finance commission’s proposal to bring down the combined debt of the Centre and states to 68% of the GDP by 2014-15.

DK Joshi, principal economist at credit rating agency Crisil thinks the targets may be difficult to achieve. “The targets are contingent on a high growth of over 8% as well as on expenditure management. Unless the government takes some hard decision on expenditure heads like subsidies, it may be difficult to meet the goalposts,” he said.

The FRBM Act, which was enacted in 2003, had committed the government to eliminating the revenue deficit by 2009-10 through an annual reduction of 0.5% of the GDP and the fiscal deficit was to be lowered to 3% of GDP by paring it by 0.3% of GDP annually.
The revenue deficit targets were suspended for a year in 2008-09, and the financial crisis later in the year threw the deficit targets completely out of control.

A renewed commitment fiscal consolidation is also expected to help the country better its sovereign ratings. Credit ratings agency Standard and Poor’s recently raised India’s sovereign rating outlook to ‘stable’ from ‘negative’, but warned that the ratings were constrained by a high fiscal deficit and government debt.