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Budget 2017-18 could be populist in nature

December 12, 2016 17:35 IST

The FRBM report, to be submitted on Tuesday, is likely to have ‘excuse clauses’, absolving the government of meeting its fiscal commitments under certain conditions such as war or conflict, global economic meltdowns or natural disasters.

The Fiscal Responsibility and Budget Management committee, asked to review the fiscal road map, might finally give its report by Tuesday.

However, the report will not be made public till the day of the 2017-18 Union Budget, as its recommendations on the deficit and other fiscal targets will be part of the latter.

The panel is headed by former revenue and expenditure secretary N K Singh, also a former member of Parliament.

It was to originally give the report by October 31. However, it was told to look at specific recommendations of the 14th Finance Commission on fiscal consolidation and was to give the report by November 12. Then demonetisation happened and the panel is now looking at the impact of this on the medium-term fiscal framework and on its recommendations.

It is now expected that Budget 2017-18 could be populist in nature, with sops on direct taxes and higher spending on health education and infrastructure.

This correspondent has learnt that the panel might provide some relaxation on spending by recommending different scenarios.

In a normal scenario, the fiscal deficit target for the next financial year is to be not more than three per cent of gross domestic product. However, the panel could recommend certain conditions under which extra spending is necessary and the Centre could have a target up to 3.5 per cent of GDP, said sources.

The panel’s report is also likely to have ‘excuse clauses’, absolving the government of meeting its fiscal commitments for any given year under certain conditions such as war or conflict, global economic meltdowns or natural disasters.

The recommendations could include repealing the existing FRBM Act and replacing it with an updated law, based on its report. The panel could also suggest against a fiscal deficit range and recommend combining the Centre and states’ fiscal deficit and debt targets.

It is to review various aspects for determining FRBM targets and the feasibility of aligning fiscal expansion or contraction with credit expansion and contraction.

The other members of the FRBM panel are Reserve Bank of India governor Urjit Patel, Chief Economic Advisor Arvind Subramanian, former finance secretary Sumit Bose, and Rathin Roy, director of the National Institute of Public Finance and Policy.

Arup Roychoudhury in New Delhi
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