debt-to-GDP ratio Current Affairs - 2019

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Why India needs watch-dog for Fiscal Discipline?

The Chairman of the Fifteenth Finance Commission N K Singh has pitched for a fiscal council to enforce fiscal rules and better manage public debt.

Why Fiscal Council?

  • For state government liabilities, Article 293 (3) provides a constitutional check over borrowings. But there are no such restrictions on the Centre Hence there is a need for an alternative institutional mechanism like Fiscal Council to enforce fiscal rules and keep a check on Centre’s fiscal consolidation.
  • An institutional mechanism for sound fiscal practices will bring in transparency, instil confidence among domestic and foreign investors and improve policy outcomes.
  • An institutional mechanism will also prevent practices such as accounting jugglery to show the Centre’s finances in better shape, undermining the sanctity of the budget numbers.
  • Even the CAG has underscored the need for proper disclosures, saying that budgets often understate fiscal deficits by misusing accounting loopholes.
  • The Fiscal Responsibility and Budget Management (FRBM) Review Committee had also recommended setting up an autonomous council. Even the 13th and 14th finance commissions had favoured the setting up of a Council to keep tabs on budget forecasts and their veracity.

India’s debt-to-GDP ratio of the states and the Centre combined is also way too high at 70%. An independent Fiscal Council will streamline the fiscal discipline.

Recommendation of Fiscal Responsibility and Budget Management Review Committee

The Fiscal Responsibility and Budget Management Review Committee had outlined the functions like Preparing multi-year fiscal forecasts, recommending changes to fiscal strategy, improving the quality of fiscal data and advising the government if conditions exist to deviate from the fiscal target and advising the government to take corrective action for non-compliance with the Bill for the fiscal council.