N.K Singh panel recommends 2.5% fiscal deficit target by FY 2022-23

The NK Singh panel has recommended a debt to GDP ratio of 38.7% for the central government and a fiscal deficit of 2.5% of GDP, both by fiscal year 2022-23

The NK Singh panel to review India’s fiscal discipline rules has recommended a debt to GDP ratio of 38.7% for the central government and a fiscal deficit of 2.5% of GDP, both by fiscal year 2022-23.

The panel has also suggested that there be some flexibility in the deficit targets on both sides — downward when growth is good and upward and it isn’t.
The panel has recommended enacting a new Debt and Fiscal Responsibility Act after repealing the existing Fiscal Responsibility and Budget Management Act , and creating a fiscal council.
In 2016-17, India’s debt to GDP ratio for the central government was 49.4% and fiscal deficit at 3.5% of GDP.
The committee’s report, which was submitted before the union budget presented on 1 February, was made public by the finance ministry on Wednesday.
The proposed three-member fiscal council will prepare multi-year fiscal forecasts for the central and state governments (together called the general government) and provide an independent assessment of the central government’s fiscal performance and compliance with targets set under the new law.
The committee favours a debt to GDP of 60% for the general government by 2022-23, 40% (38.74%) for the central government and 20% for state governments. Within the framework, the committee has recommended adopting fiscal deficit as the key operational target consistent with achieving the medium-term debt ceiling, at 3% of GDP for three years, between 2017-18 and 2019-20.
Revenue deficit to GDP ratio has been envisaged to decline steadily by 0.25 percentage points each year from 2.3% in 2016-17 to 0.8% in 2022-23.
However, to deal with unforeseen events such war, calamities of national proportion, collapse of agriculture activity, far-reaching structural reforms, and sharp decline in real output growth of at least 3 percentage points, the committee has specified deviation in fiscal deficit target not more than 0.5 percentage points. It has noted that Reserve Bank of India governor Urjit Patel had favoured 0.3 percentage points. However, the government has to commit to come back to its stated path of fiscal discipline the following year.
Similar to the escape clause, this buoyancy clause can be invoked by the government, after formal consultations and advice of the fiscal council. “If there is a sharp increase in real output growth of at least 3 percentage points above the average for the previous four quarters, fiscal deficit must fall by at least 0.5 percentage points below the target,” the committee said.