Do we need a fiscal council?

Fiscal councils are independent agencies with a mandate to assess fiscal policies, rules and performance of government.

Functions

  • improves democratic accountability by fostering transparency.
  • discourages populism and opportunistic shift in fiscal policy ( e.g, pre-electoral spending spree ).
  • provides direct inputs to budget process thereby closing budget slippage.
  • enhance public awareness about the government’s revenue and expenditure by independent analysis and forecasts and raise the reputation as the electoral cost of unsound policies and broken commitments.
  • The fiscal council promotes fiscal policies consistent with the objective of fiscal sustainability, predictability and macroeconomic stability.

Recommendations for Fiscal council in India

  • 13th and 14th Finance commission advocated the establishment of independent fiscal agencies to review the government’s adherence to fiscal rules and to provide independent assessments of budget proposals.
  • In 2017, the N.K. Singh committee on the review of fiscal rules set up by the finance ministry suggested the creation of an independent fiscal council that would provide forecasts and advise the government on whether conditions exist for deviation from the mandated fiscal rules.
  • In 2018, the D.K. Srivastava committee on fiscal statistics established by the National Statistical Commission (NSC) also suggested the establishment of a fiscal council that could co-ordinate with all levels of government to provide harmonized fiscal statistics across governmental levels and provide an annual assessment of overall public sector borrowing requirements.

    Read United Nations Economic and Social Council

Why India needs a Fiscal Council ?

  • In India, there is historically a case of budget mismanagement and consistently poor budget forecasting. Research suggests that countries with independent fiscal councils tend to produce relatively more accurate budget forecasts and stick better to fiscal rules.
  • Issues of fiscal profligacy and populism widening fiscal deficits in India could be overseen.
  • A fiscal council will act as watchdog & prevent the government from gaming the fiscal rules through creative accounting.

Why India does not need a Fiscal Council ?

  • Creation of a fiscal council leads to duplication of work. As of now, both the Central Statistics Office (CSO) and RBI give forecasts of growth and other macroeconomic variables,
  • It would lead to undermining the authority of the Finance Ministry and diluting its accountability. Presently macroeconomic forecasts and budget estimates are made by the finance ministry.
  • There are existing mechanisms for fiscal discipline under the FRBM Act, 2003.

2021 GS Paper 1 Question Paper

Way forward

  • indeed the creation adds value to the existing mechanism. But at first, a political will to keep fiscal displace and better budget management practice and full implementation of existing laws and mechanisms are important.

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