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.
cent).
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