Breaching FRBM limits acceptable in pandemic
The chairman of the Fifteenth Finance Commission, NK Singh, said on 21 May 2020 that increased spending commitments due to the Covid-19 pandemic might force the Centre and states to breach their fiscal responsibility and budget management limits, and they would need to have a clear path to return to fiscal sustainability after the pandemic was over. Addressing the media via videoconferencing, Singh said that there should also be increased focus on the rural areas in terms of containment, testing and treatment, since migrants were heading back to villages in droves.
- Singh was speaking after the first meeting of the commission’s panel on fiscal consolidation, and a meeting on the commission’s panel on the health sector.
- Each state will have to examine what is contained in their own FRBM Acts. Quite a few states have the 0.5 per cent escape clauses.
- These targets can be flexibly breached, provided there is a commitment to come back. For the centre, an amendment may not be required.
- All that has to be done at some stage, is for the Finance Minister to present a roadmap to come back to a sustainable fiscal path.
- The Centre's decision to allow states to borrow nearly as much as it itself would do, augured well for fiscal federalism.
- At the moment it is difficult to predict what amount of additional fiscal pressure would be brought about due to the pandemic and extra borrowing.
- The meeting reviewed the recent trends and the emerging scenario in the deficit and debt indicators of the Union and state governments.
- The panel noted that both the Union and state governments will have to make substantive expenditures to tackle the unprecedented situation caused by the pandemic.
- Discussions were also held on structural issues in the fiscal situation of the government prior to the outbreak of the pandemic, the need to take a re-look at the definition of debt and deficits in order to ensure consistency between stocks and flows, and, possibilities for state governments to avail of the full additional borrowing space permitted to them by meeting the conditions therein.
- In the subsequent meeting on the health sector, there were discussions on the need to increase health budgets and allocations by both the Centre and states.