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  3. FRBM panel recommends govt to set 3% fiscal deficit target up to FY20

FRBM panel recommends govt to set 3% fiscal deficit target up to FY20

13 Apr 2017 Evaluate

The Fiscal Responsibility and Budget Management (FRBM) review committee chaired by former Revenue Secretary N.K. Singh, has recommended the government to set the fiscal deficit target at 3% of the Gross Domestic Product (GDP) in coming years upto March 2020 and slowly cut it to 2.8 per cent in 2020-21 fiscal and to 2.5 per cent by 2022-2023. In the financial year 2016-17, the fiscal deficit was 3.5 per cent of GDP.

Calling for more focus on debt-to-GDP ratio, its recommendation for the fiscal deficit for the current fiscal is lower than 3.2 percent that Finance Minister Arun Jaitley has set for himself in the Budget for 2017-18. The high level panel recommended combined debt-to-GDP of 60 per cent by 2023, 40 per cent for the central government and 20 per cent for State governments. It also suggested lowering revenue deficit to GDP ratio by 0.25 percentage points each year by bringing it down to 0.8 per cent in FY2023 from 2.3 per cent in FY2017.

However, the panel suggested ‘escape clause’ in case of over-riding consideration of national security, acts of war, calamities of national proportion and collapse of agriculture severely affecting farm output and incomes. It said that far-reaching structural reforms in the economy with unanticipated fiscal implications too can trigger deviation from the targets. It also stated that the deviations from the stipulated fiscal deficit target shall not exceed 0.5 percentage points in a year.

The FRBM panel recommended constituting a three-member Fiscal Council to prepare multi-year fiscal forecasts and a debt and fiscal sustainability analysis that makes projections on key fiscal indicators. It is to provide an independent assessment of the central government's fiscal performance and compliance with targets as also advice if conditions exist to permit a deviation for invocation in the escape or buoyancy clause.

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