The Fiscal situation in India has been under severe stress even before COVID-19 and the novel coronavirus pandemic has only worsened it.
Besides large deficits and debt, there are questions of comprehensiveness, transparency and accountability in the Budgets. The common practice of repeated postponement of targets, timely non-settlement of bill payments and off-budget financing to show lower deficits means that the idea of establishing a Fiscal Council is relevant.
A Fiscal Council is an Independent Fiscal Institution (IFI) with a mandate to promote stable and sustainable public finances.
It has been recommended by both 13th and 14th Finance Commissions as well as by FRBM Act review committee.
Need for a Fiscal Council-
- Poor Budget Projections
- deviations from budget estimates tend to be extraordinarily high for budget estimates presented in interim budgets.
- finance ministry’s overall record in forecasting projections has been consistently poor, as it usually overstates revenue projections and understate expenditures.
2. Dressing up of Fiscal Numbers
- When the Government fails its revenue or expenditure targets it resorts to different cover up strategies.
- Currently the most used strategy of the Union Government is disinvestment of public sector enterprises.
3. No coordination between GST Council and Finance Commission
4. Limiting the borrowings by the Central government
- Article 293 provides a constitutional check over the borrowings by the State government but there is no such restriction on the Central government.
Functions and Merits of Fiscal Council –
- It would provide unbiased report to Parliament which would ensure transparency and accountability.
- Costing of various policies and programmes would help in discouraging populist shifts in Fiscal Policy.
- Scientific estimates of the cost of programmes and assesment of forecasts would help in raising public awareness about their fiscal implications.
- It would work as a watchdog in monitoring rule-based policies, which would raise level of debate within and outside the Parliament.
Cons of Fiscal Council-
- Some economists argue that there are already established institutions like –
i) CAG- watchdog of public finance
ii) Fiscal Policy Strategy Statement(FPSS) under FRBM act to ensure accountablity.
So, Fiscal Council would lead to hinderance in their work.
2. Government may balame it for restricting rapid growth.
3. Without Strong Political Will, it would also not be able to achieve its full potential.
Cross-country evidence shows that an independent Fiscal Council exerts a strong influence on fiscal performances and India should definitely adopt it. There is a need for systems and institutions to ensure checks and balances in the system for greater good. The government borrows and spends more in order to support its welfare programmes or sometimes to further their political agendas.Fiscal Council will help in improving comprehensiveness, transparency and accountability of Budgetary data and will fix this issue.