li  inan e in ndia     18.19
     volatility which have become the new norms of                          per cent. The Committee has suggested
     global economy45. In the backdrop of this changed                      this ratio to be 20 per cent in case of the
     stance, the the Government, in 2016 constituted                        States.
     a Committee to review the implementation of the                  (ii) Fiscal Glide Path as the key operational
     FRBMA.                                                                 parameter of fiscal management. This
                                                                            provides the Government a flexibility of
     FRBM Review Committee                                                  0.5 per cent in targeting the fiscal deficit
     The five-member committee handed over its                              (the Escape Clause). For the year 2018-
     report by late January 2017. Though the report                         19, the Budget has set a fiscal deficit
     is yet to be put in the public domain, meanwhile,                      target of 3.3 per cent has been targeted
     some important clues to its recommendations                            by the Government for the year 2018-
     have been outlined by the Union Budget 2017-18                         19 (by 2019-20 the Government aims
     as given below:                                                        to cut it down to the 3 per cent level,
                                                                            as was suggested by the original FRBM
                 It has done an elaborate exercise and has
                                                                            Act, 2003). For the year 2018-19, the
                 recommended that a sustainable debt
                                                                            Government has set a fiscal deficit target
                 path must be the principal macro-economic
                                                                            of 3.3 per cent (for 2019-20 it is 3.0 per
                 anchor of our fiscal policy.
                 It has favoured Debt to GDP of 60 per
                 cent for the General Government by                  lImItIng government exPendIture
                 2023— consisting of 40 per cent for
                 Central Government and 20 per cent for           Elected governments are composed of different
                 State Governments.                               interest groups and lobbies. At times, such
                 Within the framework of debt to GDP              governments might intend to use its economic
                 ratio, it has derived and recommended            policies in a highly populist way for greater political
                 3 per cent fiscal deficit for the next three     mileage without caring for the national exchequer.
                 years.                                           Such acts might force the governments to go in
                                                                  for excessive internal and external borrowing
                 It has also provided for Escape Clauses,
                                                                  and printing of currency. Governments generally
                 for deviations upto 0.5 per cent of GDP,
                                                                  avoid to increase tax or impose new taxes for
                 from the stipulated fiscal deficit target.
                                                                  their revenue increase as such acts are politically
                 Among the triggers for taking recourse
                                                                  unpopular. On the other hand, borrowings
                 to these Escape Clauses, it has included
                                                                  and printing of currency impose no immediate
                 “far-reaching structural reforms in the
                                                                  economic or political costs. A government in
                 economy with unanticipated fiscal
                                                                  the election year usually spends money frugally
                 implications” as one of the factors.
                                                                  by borrowings (from the RBI in India) because
          The Government has accepted (in Union                   it is the coming government after the elections
     Budget 2018-19) some key recommendations of                  who is supposed to repay them. Government
     the Review Committee—                                        expenditures remain higher and expanding due to
           (i) Debt Rule which suggested the                      some economic reasons also—by doing so extra
                 Government to bring down Central                 employment is generated and the output (GDP)
                 Government’s Debt to GDP ratio to 40             of the economy is also boosted. If governments go
                                                                  for anti-expansionary fiscal and monetary policies
       45.       e find similar view eing forwarded y the inistry
              of Finance, Economic Survey 2015–16, Vol. 1 & Vol.  with the objective of reducing its expenditures
              2 (New Delhi: Government of India, 2016).           the employment as well as the GDP both will