FRBM panel against aggressive fiscal consolidation path

FRBM Act moots fiscal deficit below 3%

Just nine days ahead of the Budget, a high level committee set up to vet government’s fiscal deficit roadmap, on Monday submitted its report to Finance Minister Arun Jaitley suggesting there was no need to follow an aggressive fiscal consolidation path.

Sources said it has also spoken against reducing fiscal deficit below 3%. Jaitley said the government will take appropriate action on the recommendations after going through the report. There is a buzz that the government may incorporate some of the recommendations in the Budget to be presented on February 1.

The fiscal deficit is the difference between what a government earns and what it spends. It is an important number in the Budget and is keenly watched by investors and external agencies to check the prudence of a government's expenditures. The government had redrawn the fiscal consolidation roadmap in 2015 and stretched the time to reach the fiscal deficit figure of 3% of GDP in the current financial year 2017-18.

But the need for increased infrastructure spends and higher government salaries recommended by the Seventh Pay Commission has limited the room for India to curb its fiscal deficit at 3% of the Gross Domestic Product this year. While presenting the Budget for 2016-17, Jaitley had stuck to the fiscal consolidation roadmap but announced setting up of a committee to review the FRBM Act to examine the possibility of a fiscal deficit range as the target, instead of the current practice of fixed numbers as targets.

Sources said that the committee has also suggested a range as the target to be achieved in the next three years rather than a fixed number. Members of the FRBM Committee include RBI Governor Urjit Patel, Chief Economic Advisor Arvind Subramanian, former finance secretary Sumit Bose and Rathin Roy, Director, National Institute of Public Finance & Policy (NIPFP).