FRBM panel recommends 3% fiscal deficit target leading up to FY20

The government should target a fiscal deficit of 3 percent of the Gross Domestic Product (GDP) in the years leading up to March 31, 2020, the Fiscal Responsibility and Budget Management (FRBM) Committee has recommended.

The report of the committee, headed by NK Singh, was submitted to the government in January this year but was made public only on Wednesday.

Explaining the rationale behind this Singh said, "The report must be seen as an integrated work which involves several stands of thought. First, to move from a fiscal-deficit centric anchor to debt as a principle anchor and bring fiscal deficit as an operational anchor."

The report recommended fiscal deficit to be cut to 2.8 per cent in 2020-21 fiscal and to 2.5 per cent by FY2023.

The panel, however, suggested an "escape clause" in case of over-riding consideration of national security, acts of war, calamities of national proportion and collapse of agriculture severely affecting farm output and incomes.

Also, "far-reaching structural reforms in the economy with unanticipated fiscal implications" too can trigger deviation from the targets.

"The deviations from the stipulated fiscal deficit target shall not exceed 0.5 percentage points in a year," it said.

On whether it will be ready as a new act in the next session of Parliament, Singh said that the new draft legislation, namely the debt and fiscal responsibility legislation, has been worked out. "It is for the government to take a call if they want to repeal the old act, Singh added.

The committee was also in favour of reducing revenue deficit to GDP ratio steadily by 0.25 percentage points each year.

However, former RBI Governor C Rangarajan, while speaking to CNBC-TV18, said, "The FRBM act should have some teeth to it otherwise it is just an advisory."

In the four-volume report, the panel recommended revenue deficit should be 2.05 percent of GDP in current fiscal, declining to 1.8 per cent in the next and 1.55 per cent in 2019-20. This should be brought down to 0.8 per cent in FY2023.

(With inputs from PTI)