Proposed fiscal council superfluous, pernicious

Officers, economists in FinMin have enough knowledge. There is no need to add few more of same breed

The proposal for a fiscal policy council has gained currency after the Fiscal Responsibility and Budget Management (FRBM) Committee recently recommended it, though not unanimously, as an autonomous body under the finance ministry. The 14th Finance Commission had also recommended the council, but the government did not implement it, and rightly so.  I am writing to say that such a council will not only be superfluous but also pernicious. The proposal has no merit.

The FRBM panel wants the council to be tasked with the monitoring of the government’s fiscal announcements for any year, providing its own forecasts and analysis, and to advise the ministry. It has said there will be three set of functions — empirical, analytical and advisory. The idea is to create an institution that works with the government to deliver better fiscal outcomes and makes the analytical basis for fiscal decisions clear.

The government must be complimented for showing some common sense. Imagine the chutzpah of a panel member writing in a column in Business Standard on April 14 that in our government culture “peripatetic decisions are commonplace” and rulings are “by discretion”. Such derogatory remarks about serious decisions taken by the finance minister after consulting a host of highly qualified economists in the department of economic affairs and the chief economic advisor only show how the very basis of the recommendation is ill-conceived and founded on false premise.

First let me recount what the finance minister has at his disposal. The whole lot of economists with good degrees and PhDs are available in the economic affairs department. There is an economic advisor and a chief economic advisor who are well-known economists. Often some of the secretaries in the economic ministries are well-known economists. For many years, the secretary in the department of economic affairs and the finance secretary have been most well-known economists of world class. Then there is the National Institute of Public Finance and Policy (NIPFP), which is an autonomous and specialised institution on fiscal policies. The NIPFP has been consulted over time on fiscal issues. I know that before introducing service tax in 1994, basic research was done by the NIPFP. And, for GST also, very basic input was supplied by NIPFP at different stages. With this kind of assistance at the disposal of the finance minister, there can be no more need to create another organisation. If an FM chooses to ignore all the advisers and only gives “peripatetic decisions”, then he can do the same even if the fiscal council is there. For, nothing is binding on him.

It has been said there are nearly 40 countries which have a fiscal council. So, it means many more countries do not have such a body. The US Congressional budget agency is more like our parliamentary committee on finance. And, we in India have a solid base in the economic affairs department to advise the finance minister, which other countries may not have. Merely copying institutions of other countries has landed India with Ombudsman which is known as the “most well-paid unemployment”.

There is a principle of logic and philosophy, called Occam's razor, that if a theory is based on less assumptions, it is better than one having more assumptions. This also is true of an organisation. Less economists the better. For they never agree. Each has a different opinion. Even in the FRBM Committee, there has been a lot of dissent.

The conclusion is that the decisions on fiscal road map are not taken hastily (not peripatetic, nor discretionary). They are taken by the FM after carefully consulting the departments of economic affairs, the chief economic advisor, and even the NIPFP in some cases. These officers and economists in the finance ministry have enough knowledge of public finance and macroeconomics. There is no need for adding a few more of the same breed. This will only overburden the system and become superfluous and pernicious. It is easy to see the motive behind the creation of a fiscal council. Some economists and ex-officers are trying to enter the government. The attempt should be rejected in limine.

The writer is retired member of the Central Board of Excise & Customs. E-mail: smukher2000@yahoo.coms