The Fiscal Responsibility and Budget Management (FRBM) framework has not been able to stop building up of "dangerous" fiscal imbalances and could not succeed in bringing debt in a declining trajectory, Chief Economic Advisor Arvind Subramanian has said.
"FRBM in India worked up to certain point but not completely... FRBM also did not succeed in putting debt in continuous declining trajectory," Subramanian said while addressing a session 'Contemporary Themes in India's Economic Development & Economic Survey' at IIT Delhi.
On the objectives of the framework, the CEA said the 13- year old FRBM Act has failed to prevent a build up of dangerous fiscal imbalances.
Subramanian, who has also served as a senior fellow at the Peterson Institute for International Economics, pointed out that when India first introduced FRBM around 2002-03, India was a very different country than what it is today.
"At that time in 2002 the economic boom had not happened, in fact, things were looking pretty bad then, growth had declined, private investment had declined...So it was very different world then.
"And it's very different world today because India is now much faster growing economy than in 2002... There is a sense in which it is natural to review the FRBM," Subramanian said.
The FRBM committee was set up in May last year to review the working of the Fiscal Responsibility and Budget Management (FRBM) Act over the last 12 years and suggest the way forward 'keeping in view the broad objective of fiscal consolidation and prudence and the changes required in the context of the uncertainty and volatility in the global economy'.
The report of the panel was made public on April 12.
Among other things the committee wanted the existing FRBM Act, 2003, to be replaced by a new Debt and Fiscal Responsibility Act and suggested setting up of a 'fiscal council', to provide forecasts and analysis for fiscal deficit as well as advise the finance ministry on escape clauses.
Subramanian's statement assumes significance as the panel, headed by former Revenue Secretary N K Singh, had recently suggested that fiscal deficit should be brought down to 2.5 per cent of the GDP by 2022-23 in a phased manner.
The government has also pegged the fiscal deficit for 2017-18 at 3.2 per cent of GDP and remained committed to achieve 3 per cent in the following year.
Referring to some media reports suggesting growing rift between the RBI and the finance ministry over policy rates, the CEA said the government will not effect or influence monetary policy committee (MPC).
"We have created MPC that will independently decide policy rates," he said.
"I hope you are not reading newspapers recently, I hope you won't read, please don't read them but of course you know that MPC decided policy rates independently," he said in a lighter vein.
Talking about the comparison being made between India and China on the economy front, Subramanian said contrary to popular opinion, the growth turnaround of both the countries happened exactly at same point in the history.
China's growth rate picked up in 1978 and India's around 1979-80 and the only difference was that the former grew much more rapidly than latter did, the CEA said.
"In the period 1980 to 2002, India grew at 3.4 per cent rate and China grew at 7.6 per cent," Subramanian said.
Talking about foreign investment, the CEA said China was ahead of us but slowly India is catching up.
He, however, noted that reduction of poverty in India is not as fast as China's because the Chinese growth was much more inclusive at least for some time.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)