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Home > Business > Business Headline > Report

Cabinet clears diluted fiscal responsibility Bill

BS Economy Bureau in New Delhi | February 05, 2003 14:49 IST

The Union Cabinet on Tuesday watered down the Fiscal Responsibility and Budget Management Bill, 2000, by deciding to delete its key provisions, including elimination of revenue deficit, reduction in fiscal deficit, curbing government borrowings from the Reserve Bank of India, and curtailing expenditure in case of revenue shortfalls.

According to government officials, these provisions were seen as restricting the Centre's flexibility in ensuring macro-economic stability.

They will no longer be part of the Bill's preamble and instead be relegated to the rules.

The amendments cleared by the Cabinet aim to provide more leeway regarding the conditions under which revenue and fiscal deficits may exceed the limit as specified under the rules.

The Bill, which was introduced in the Lok Sabha in December 2000 during Yashwant Sinha's tenure as finance minister, was subsequently referred to the standing committee on finance.

The committee's report, which recommended substantial dilution of the various clauses, was accepted by the government.

The Bill would be tabled in the House in the ensuing Budget session, the officials said.

Officials said safeguards would be incorporated in the Bill to ensure that economic decision-making did not become the matter of judicial scrutiny.

The proposed changes would reduce the dependence on borrowings for financing Plan expenditure. It would also help improve revenue mobilisation and expenditure management, they added.

The Bill specifies the Centre should lay annual statements on the medium-term fiscal policy, fiscal policy strategy and macro-economic framework before both Houses of Parliament.

As per the Bill, the definition of fiscal deficit will be the total disbursements from the Consolidated Fund of India, excluding repayment of debt, over total receipts into the Fund, excluding debt receipts, during a financial year.

In its original form, the Bill sought the elimination of revenue deficit by the end of 2005-06 and also proposed reduction in the fiscal deficit to 2 per cent of the gross domestic product.

It also prohibited borrowing by the Centre from the Reserve Bank of India after 3 years except by way of advances to meet temporary cash needs in certain circumstances.

The Bill had proposed a cap on government guarantees at 0.5 per cent of the GDP in any financial year and restricting the annual liabilities to less than 50 per cent of the GDP every year for 10 years beginning 2001.

According to the Bill introduced in 2000, the government was to reduce the revenue deficit by 0.5 percentage points or more of the estimated GDP every year reducing it to nil by March 31, 2006.

The revenue and fiscal deficits could, however, exceed the limits on grounds of unforeseen demands on the finances of the Centre due to national security or calamity, it said.

<BR><a href=http://www.rediff.com/money/prebud03.htm target=_new><B>Run-up to the Budget 2003</B></A>
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