‘There is now an architecture to the fiscal framework’

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ou can take a horse to the water, but you can’t force it to drink it, said NK Singh, former Revenue Secretary and Expenditure Secretary, and former Member of Parliament, who chaired the FRBM Committee.

Noting that the report has tried to give a contemporary architecture to the fiscal framework, he said in an interview to

BusinessLine that it is up to the government how many of the recommendations it will accept. Excerpts :

What are your views on the report?

The report has given a contemporary architecture and a second generation fiscal framework to the government. It has proposed that the macro-economic anchor should be debt and debt-to-GDP ratio and has suggested switching to the fiscal deficit as an operational target.

Why is debt and debt-to-GDP ratio proposed as the key anchor?

This was done due to solvency considerations, best international practices and steering away from issues of a perceived debt trap.

Finance Minister Arun Jailtey has in the Budget speech partly accepted the recommendation to target the fiscal deficit at three per cent in 2018-19 though the government is yet to take a view on the final target of 2.5 per cent by 2022-23.

This will also enable the recommended threshold of 60 per cent for general government debt with 40:20 ratio between the Centre and the States.

How successful do you think will governments be implementing this given the past experience with fiscal consolidation?

You can take a horse to the water but you can’t force it to drink it. It is up to the government how much of the report they want to accept. The FRBM Act 2003 was largely followed in the first few years, but then a pause button was hit for the fiscal stimulus after which it went off track. It was in 2014 with Finance Minister Arun Jaitley and the help of Prime Minister Narendra Modi, who has been a Chief Minister, that the focus went back to fiscal related issues.

The proposal for a Fiscal Council is very interesting…

It is a best international practice and adopted by over 35 countries. It is proposed to be an autonomous body under the Ministry of Finance. It will be an additional level of firewall to using the escape trigger and will also give analytical inputs.