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Fiscal Council to enforce rules

Topics Covered:

  1. Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

 

Fiscal Council to enforce rules

 

What to study?

For Prelims and Mains: Need for fiscal council, significance and various recommendations in this regard.

 

Why in News? Stressing on the need to have uniform rules for fiscal consolidation of States and Centre, 15th Finance Commission’s Chairman NK Singh has called for institutional mechanism like a ‘Fiscal Council’ to enforce fiscal rules and keep a check on Centre’s fiscal consolidation.

 

Why do we need a fiscal council?

  • Various cesses and surcharges are becoming disproportionate proportion of overall divisible revenue. There should be some mechanism to ensure that the basic spirit of the devolution process should not be undercut by clever financial engineering or taking recourse to traditions.
  • There is a need for coordination between the finance commission as well as the GST Council. GST Council has no clue of what the Finance Commission is doing and Finance Commission has even lesser clue of what the GST Council is doing.
  • Also, for state government liabilities, Article 293 (3) provides a constitutional check over borrowings. But there is no such restriction on the Centre.
  • Therefore, it is time to have an alternative institutional mechanism like Fiscal Council to enforce fiscal rules and keep a check on Centre’s fiscal consolidation.

 

Expert committee recommendations:

In India, two expert committees have advocated the institution of such a council in recent years.

In 2017, the N.K. Singh committee on the review of fiscal rules set up by the finance ministry suggested the creation of an independent fiscal council that would provide forecasts and advise the government on whether conditions exist for deviation from the mandated fiscal rules.

In 2018, the D.K. Srivastava committee on fiscal statistics established by the National Statistical Commission (NSC) also suggested the establishment of a fiscal council that could co-ordinate with all levels of government to provide harmonized fiscal statistics across governmental levels and provide an annual assessment of overall public sector borrowing requirements.

These recommendations follow similar recommendations from the 13th and 14th finance commissions, which also advocated the establishment of independent fiscal agencies to review the government’s adherence to fiscal rules, and to provide independent assessments of budget proposals.

 

Way ahead:

With a complex polity and manifold development challenges, India need institutional mechanisms for prudent fiscal practices. An independent fiscal council can bring about much needed transparency and accountability in fiscal processes across the federal polity. International experience suggests that a fiscal council improves the quality of debate on public finance, and that, in turn, helps build public opinion favourable to fiscal discipline.

 

Sources: the hindu.