FinMin to share FRBM roadmap with PM Narendra Modi

Ministry aims to introduce the new bill in winter session

With a new economic affairs secretary, the central government will hasten work on the recommendations of the committee on redrawing the Fiscal Responsibility and Budget Management (FRBM) law.

Finance ministry officials are expected to make a presentation to Prime Minister Narendra Modi on the proposed fiscal road map till 2022-23, Business Standard has learnt.

Subhash Garg took charge on Wednesday as the secretary of the department of economic affairs, which includes the budget division. His predecessor, Shaktikanta Das, had retired on May 30. Between then and now, corporate affairs secretary Tapan Ray had taken the additional charge.

"The FRBM panel has given important recommendations which will be fed into the Budget. Very soon, we will come up with a decision. We are committed to fiscal consolidation and will follow calibrated measures to bring down the deficit," said a ministry official.

Senior sources said the aim is a new FRBM bill in Parliament's winter session. A presentation is to be given to Modi by the end of this month. The presentation will be on the recommendations of the FRBM panel and on chief economic advisor Arvind Subramanian's dissent note, as well as the Centre's own other views.

An official said the Centre concurred with the panel's recommendation to bring down the combined Centre-states debt to gross domestic product (GDP) ratio to 60 per cent by FY23. However, there are contentious issues on how to get there. While the panel suggests sticking with the fiscal deficit as the main target, Subramanian suggests the focus be on reducing the primary deficit. The other issues are on the glide path and the escape clauses.

The panel itself has recommended a fiscal deficit target of 2.5 per cent of GDP and revenue deficit of 0.8 per cent for 2022-23, the end point of its six-year medium-term fiscal road map. Other recommendations include setting up of a Fiscal Council and giving the government tightly defined escape clauses for deviating from the schedule.

"I would propose a simpler architecture, comprising just one objective, that is, placing debt firmly on a declining trajectory. To achieve this, the operational rule would aim at a steady but gradual improvement in the general government primary balance (non-debt receipts minus non-interest expenditures), until the deficit is entirely eliminated," Subramanian wrote in his dissent note.

While keeping a strict glide path to FY23, the FRBM panel has provided flexibility to the government of the day by framing escape clauses to deviate from the schedule by up to 0.5 per cent for any year, under defined circumstances. The clauses are proposed for overriding considerations of national security like acts of war, calamities of national proportion and collapse of agriculture. The are also provisions for "far-reaching structural reforms in the economy with unanticipated fiscal implications" and in case there is a sharp decline in real output growth of at least three percentage points below the average for four preceding quarters.

Subramanian had said in his dissent note that the escape clauses should have a more reasonable growth trigger that allowed for some relaxation in deficit targets during recessions and some tightening during booms.