Breaching FRBM limits acceptable in pandemic, roadmap necessary: N K Singh

In light of increased spending commitments due to Covid-19, the Centre and states can breach their fiscal responsibility and budget management (FRBM) limits, but need to have a clear path to come back to fiscal sustainability after the pandemic has been dealt with, Fifteenth Finance Commission Chairman N K Singh said on Thursday.

Addressing the media via videoconference, Singh said there should be increased focus on rural areas in terms of containment, testing, and treatment, since migrants were heading back to their villages in droves.

Singh was speaking after the first meeting of the commission’s panel on fiscal consolidation, and a meeting on the commission’s panel on the health sector.

“Each state will have to examine what is contained in its own FRBM Acts. Quite a few states have the 0.5-per cent escape clause. These targets can be flexibly breached, provided there is commitment to come back. For the Centre, an amendment may not be required. All that has to be done at some stage is for the finance minister to present a road map to get back on a sustainable fiscal path,” he said.

Singh also said the Centre allowing states to borrow extra will augur well for fiscal federalism. “It is difficult to predict the amount of additional fiscal pressure due to the pandemic and extra borrowing. We are just two months into 2020-21,” he said.

The meeting was attended by members of the finance commission, representatives from the finance ministry, Controller General of Accounts and some states, as well as economists Sajjid Z Chinoy and Prachi Mishra.

“The meeting took review of the recent trends and the emerging scenario in the deficit and debt indicators of the Union and state governments. The panel noted that both Union and state governments will have to make substantive expenditure to tackle the unprecedented situation caused by the pandemic,” said an official statement.

There were also discussions on structural issues in the fiscal situation of the government prior to the outbreak of the pandemic, a relook at the definition of debt and deficits to ensure consistency between stocks and flows, and possibilities for state governments to avail of the full additional borrowing space permitted to them by meeting the conditions therein.

In a subsequent meeting on the health sector, there were discussions on the need to increase health budgets and allocations by both the Centre and states. “We cannot second-guess the path of the pandemic. We do not know when, how, and in what form it is likely to peak and then subside,” Singh said. He added that the idea of a possible national health service cadre was also floated.

“In the short term, the focus should be on ramping up health infrastructure. There should also be focus on increasing testing, treatment, and containment facilities in rural areas since migrants are returning to the villages,” he said.