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Fiscal Consolidation and FRBM in the COVID-19 Context
The fiscal consolidation projections provided by the Fifteenth Finance Commission, including its alternative paths, have been rendered out of alignment because of the COVID-19’s deleterious economic impact.The commission has also recommended that the centre’s Fiscal Responsibility and Budget Management Act, 2018 should be reviewed by a high-powered intergovernmental group. The main deficiencies of the FRBM Act, 2018, pertaining to an internal inconsistency between the debt and fiscal deficit targets for both the central and state governments and its weak
The fiscal consolidation projections provided by the Fifteenth Finance Commission, including its alternative paths, have been rendered out of alignment because of the COVID-19’s deleterious economic impact.The commission has also recommended that the centre’s Fiscal Responsibility and Budget Management Act, 2018 should be reviewed by a high-powered intergovernmental group. The main deficiencies of the FRBM Act, 2018, pertaining to an internal inconsistency between the debt and fiscal deficit targets for both the central and state governments and its weak
macro-stabilisation framework should be addressed. The conditions under which the consolidated debt–GDP target may be raised to 70%, divided into 40% and 30% for the central and state governments, which may be combined with fiscal deficit to GDP targets of 4% and 3%, respectively, have been examined. Changes have been suggested in the macro-stabilisation framework, by making a distinction between agricultural and non-agricultural economic cycles. Setting up of a Fiscal and Monetary Policy Coordination Committee for policy coordination and dealing with emergencies and pandemic-kind situations is also relevant for India.
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