A parliamentary committee has pulled up the finance ministry for not adhering to Fiscal Responsibility and Budget Management Act in cutting revenue deficit by 0.5 per cent of GDP for 2005-06 saying there should not be deviations every now and then.
"Government should strictly adhere to targets envisaged under the FRBM Act except under extraordinary circumstances and avoid deviation now and then," the Standing Committee on Finance said in its report submitted to Parliament.
The Committee headed by B C Khanduri said Section 7(3) of the FRBM Act mandates that no deviation is permissible in meeting the obligations cast on the Centre under the Act without the approval of Parliament.
As per FRBM Act, revenue deficit should be cut by 0.5 per cent of GDP and fiscal deficit by 0.3 per cent annually.
However, the Centre budgeted revenue deficit at 2.7 per cent of GDP for 2005-06, as it was for 2004-05, while targeting a 0.2 per cent reduction in fiscal deficit to 4.3 per cent.
Finance ministry cited an additional outgo of Rs 36,000 crore (Rs 360 billion) to states as per 12th Finance Commission recommendation as the main reason for the deviation from FRBM target.
But the Committee was not satisfied with government explanation that targeted reductions in deficits could not be adhered to because of implementation of TFC award.
"The additional expenditure on account of this should have been anticipated by government in advance and management of finance should have been done accordingly," it said.
Finance ministry, however, pointed to a significant policy change in 2005-06 of not considering divestments proceeds as a resource to finance the fiscal deficit.
