Economic affairs secy says decision on report well before next Budget
Demonetisation and implementation of GST will widen the tax base leading to improvement in the tax-to-GDP ratio, and together with higher growth over next two-three years allow the government to maintain fiscal prudence while setting aside funds for public investments, economic affairs secretary Shaktikanta Das said. Commenting on the Fiscal Responsibility and Budget Management (FRBM) committee report, Das told ET in an interview that the panel has made the goals more focussed and the government will take a call on the report well before the next Budget.
The NK Singh-headed commit tee has suggested a new fiscal framework anchored on sustainable government debt pegged at 60% of GDP and prescribes appropriate fiscal deficits to achieve the same by FY23. “In the recent years, compliance (to the fiscal deficit targets) is definitely strong. Now post demonetisation and post implementation of GST, tax base will widen and hopefully tax-to-GDP will a lso improve,“ said Das.
“And with the economy expected to show higher growth in next 2-3 years, tax-to-GDP will improve, so overall it should be possible for the government to meet the requirements of public investment and maintain fiscal deficit,“ Das told ET, explaining how the targets are achievable.
The committee sees fiscal deficit declining to 2.5% of GDP by FY23. The government had announced the review of fiscal framework in the last Budget amid clamour for a more flexible framework to give the Centre room to stimulate economy in times of stress.The committee has provided an escape clause of up to 0.5 percentage point relaxation in fiscal deficit targets under certain specified circumstances, including in situations of sharp fall in growth.
“It (the report) has been made public and time has been given to the stakeholders till May 5 to give their comments. Thereafter, it will be examined and a decision will be taken. They have talked about a new legislation. The government will take a decision this way or that way well before the Budget,“ Das said.
While refusing to be drawn into a comparison between the existing fiscal framework and the one recommended by the committee, he said the panel has made the goals more focussed. “(Under) Earlier formulation there were fiscal and revenue deficit target(s). Now it is anchored on debt-to-GDP target of 60% by 2023. And on that they have built the fiscal deficit road map. To that extent, it is far more focussed because the ultimate goal is debt-to-GDP.“
He said it is dealing with a larger problem of the economy by premising debt-to-GDP ratio as the principal anchor and from that as a derivative you have fiscal deficit. The committee has proposed a fiscal deficit of 3% of GDP for the current fiscal against the 3.2% budgeted by the government.
NO IMPACT ON ROAD MAP
Das said this would not impact the road map laid out by the committee. “It was analysed and we felt that even with 3.2% fiscal deficit the government would be able reach the debt-to-GDP target for ge neral government by 2023. So, a minor adjustment was done within the overall road map given by the committee.“
He did not think the Fiscal Council, a body proposed by the committee to oversee the fiscal road map, would undermine the government's fiscal powers. “The Fiscal Council will be a recommendatory body, according to the report. In the past, the 13th Finance Commission had also recommended a Fiscal Council. Now this committee has also made this recommendation. So, the government will examine all these aspects and take a decision.“
On chief economic adviser Arvind Subramanian's dissent note to the committee, he said each member is entitled to give his views.
“CEA has given a point of view which the committee has not accepted and to ensure fairness of the report it has reproduced his point of view. It is not the government's point of view. The government will now examine the report and take a decision,“ he said.
The Economic Times New Delhi, 14th April 2017
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