Context:

• In the Pandemics, economists opine that the government needs to borrow and spend more now in order to support vulnerable households and engineer an economic recovery.

Reasons for govt restraint in spending:

• Borrowing would mean a steep rise in debt
• Endangerment of medium-term growth prospects
• Concern of rating agencies
• fear of market penalties

Need of Fiscal Council:

• Enforce fiscal discipline
• Keep the government on the straight and narrow path of fiscal virtue by Open Scrutiny.
• Give an independent and expert assessment of the government’s fiscal stance.
• Aid an informed debate in Parliament.
• Need for coordination between the finance commission as well as the GST Council.
• For state government liabilities, Article 293 (3) provides a constitutional check over borrowings. But there are no such restrictions on the centre.

Fiscal Council Mandate:

As per the model suggested by the FRBM Review Committee:

• Making multi-year fiscal projections.
• Preparing fiscal sustainability analysis.
• Providing an independent assessment of the Central government’s fiscal performance and compliance with fiscal rules.
• Recommending suitable changes to fiscal strategy to ensure consistency of the annual financial statement.
• Taking steps to improve quality of fiscal data.
• Producing an annual fiscal strategy report which will be released publicly.

Challenges against Fiscal Council:

• Lack of in-depth discussions in Parliament on the government’s fiscal stance.
• Lack of demand for accountability of the government of day.
• Ministry of finance cant be forced to follow the estimates of one specific agency.
• Poor economic fundamentals will shift the blame on fiscal council than government.
• Fiscal accountability, compliance with the rules is already taken up CAG.

Way Forward:

• Start small and go further if experience is positive.

About Fiscal Council:

• A permanent agency with a mandate to independently assess the government’s fiscal plans and projections against parameters of macroeconomic sustainability.
• An independent body set up by a government to evaluate its expenditure and tax policy.
• First recommended by the Thirteenth Finance Commission.
• Endorsed by the Fourteenth Finance Commission and then by the FRBM (Fiscal Responsibility and Budget Management) Review Committee headed by N.K. Singh.
• About 50 countries around the world have established fiscal councils as per IMF.

Reference: https://www.thehindu.com/opinion/lead/do-we-need-a-fiscal-council/article32046204.ece

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