Finance Minister Nirmala Sitharaman arrives at the finance ministry before she leaves to present the federal budget in the parliament in New Delhi, India, February 1, 2021. (REUTERS)
Finance Minister Nirmala Sitharaman arrives at the finance ministry before she leaves to present the federal budget in the parliament in New Delhi, India, February 1, 2021. (REUTERS)

Fiscal policy won’t be tied to debt-GDP ratio for now

The 15th Finance Commission (FFC), which was chaired by N.K. Singh, has recommended bringing the public debt to GDP ratio down from 89.8% of GDP in FY21 to 85.7% of GDP in FY26.
By Asit Ranjan Mishra
PUBLISHED ON FEB 05, 2021 12:49 AM IST

The finance ministry may temporarily abandon targeting government debt to gross domestic product (GDP) ratio as the medium-term anchor for fiscal policy, limiting its focus on the glide path for fiscal deficit at least till FY26. The government holds that during the current economically volatile times, when there is no certainty about the growth trajectory, it may be difficult to project a public debt to GDP ratio.

The FY22 budget omits any talk about the government debt to GDP ratio even in the ‘Medium Term Fiscal Policy Cum Fiscal Policy Strategy Statement’, though the finance ministry through an amendment to the Fiscal Responsibility and Budget Management (FRBM) Act in FY19 had included it as the key fiscal target, promising to bring it down to 60% of GDP by FY25. Finance minister Nirmala Sitharaman in her budget speech gave a new fiscal consolidation path only to bring down fiscal deficit below 4.5% of GDP by FY26 from 6.8% budgeted for FY22.

“We hope to achieve the consolidation by first increasing the buoyancy of tax revenue through improved compliance, and second by increased receipts from monetization of assets, including public sector enterprises and land,” she said.

The 15th Finance Commission (FFC), which was chaired by N.K. Singh, has recommended bringing the public debt to GDP ratio down from 89.8% of GDP in FY21 to 85.7% of GDP in FY26.

The commission has recommended setting up of a high-powered inter-governmental group for crafting a new FRBM framework and oversee its implementation.

“What should be the new structure of fiscal targeting is a matter to be discussed separately. The government will be coming with a proposal. We will either set up a small committee to draft the FRBM or do it internally. I doubt the amendments will happen in the current budget session,” a senior finance ministry official said under condition of anonymity.

The official said it is not feasible to project debt to GDP ratio for the medium term in today’s uncertain times.

An email sent to a spokesperson of the finance ministry remained unanswered till press time.

SHARE THIS ARTICLE ON
Topics
Close
SHARE
Story Saved
OPEN APP