ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Articles By Pinaki Chakraborty

Independent Fiscal Councils

An appropriate balance between fiscal rules and discretionary development spending within the overall borrowing limit of the Fiscal Responsibility and Budget Management Act is critical for macro stability. However, monitoring and compliance of the act at the union and state levels should be left to Parliament and state legislatures. Mobilising public opinion to rebalance the existing institutional arrangements in favour of fiscal responsibility is essential, and this can happen only through parliamentary and legislative discussions on fiscal issues.

An Introduction and Overview

The fiscal consolidation effort of the union government reinforces the fact that a sustained reduction in debt and deficit at the union level is critical for a fast improvement in the general government fiscal balance. As the economic growth has improved, a medium-term debt path for a targeted reduction of debt ratio would help sustain the gains achieved in 2022–23.

The post-COVID-19 Economic Recovery and Fiscal Stance

The Union Budget 2022–23 reflects the possibility of a significant consolidation in the year. As we navigate COVID-19 and the war-induced macroeconomic uncertainties, the realisation of the proposed fiscal consolidation strategy, revenue target, and expenditure allocation priorities would depend on the way the economy navigates these challenges as they unfold.

 

COVID-19 Context and the Fifteenth Finance Commission

The objective of this paper is to understand the core recommendations of the Fifteenth Finance Commission in the context of COVID-19 pandemic. Given the macroeconomic uncertainties and rising fiscal needs, the commission focused on fiscal stability, equity and enhancement of fiscal space through higher borrowing with a fiscal exit plan for both union and states.

 

State Level Debt–Deficit Dynamics

An analysis of the debt and deficit of states based on the budget estimates of 2016–17 shows that almost half of them have a fiscal deficit target higher than the limit set in the Fiscal Responsibility and Budget Management Act. These states need to focus on the quality of expenditure and elimination of revenue deficit as per the framework proposed by the Fourteenth Finance Commission to enhance state-level capital spending.

Emerging Issues in Union–State Fiscal Relations

The restructuring of non-Finance Commission Grants is an improvement when it comes to scheme-related transfers. However, when 10 schemes constitute 90% of core grants, there is further scope for rationalisation of these schemes. The implications of following a sustainable debt path under the new Fiscal Responsibility and Budget Management framework in the budget indicate a larger fi scal correction at the state level vis-à-vis the union government.

Evolving Centre–State Financial Relations

After the Fourteenth Finance Commission award, aggregate transfers as a percentage of gross domestic product has increased, while grants as a percentage of GDP has declined. The centre is resorting to cess and surcharges that are not shared with the states. This would mean denial of revenue to states, which goes against the spirit of the Constitution. Further, the states have a reduced untied fi scal space, with the union’s share in Centrally Sponsored Schemes in 2016–17 (BE) being reduced. Finally, in the absence of plan transfers, post 2017–18, the focus should be to develop a framework for non-fi nance commission grants to states which is predictable and certain.