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New Bill aims to cut fiscal deficit to 2%

DEC 20: The Fiscal Responsibility and Budget Management Bill will empower the Union government to cut expenditure authorisations wherever there is excess of expenditure over specified targets.

The Bill, which was introduced in Lok Sabha by Finance Minister Yashwant Sinha on Wednesday, also seeks to achieve fiscal discipline by prohibiting direct borrowing by the central government from the Reserve Bank after a three-year period, except by way of advances to meet temporary cash needs in certain circumstances.

The Bill, which aims at eliminating revenue deficit by March 31, 2006 and bringing down fiscal deficit to 2 per cent of GDP by 2005-06, provides for a quarterly review of trends in receipts and expenditure in relations to targets set in the annual budget. The finance ministry will be required to place the outcomes of such reviews in both Houses of Parliament.

As per the provisions of the Bill, the the Finance Ministry will have to table a Medium-term Fiscal Policy statement, Fiscal Policy Strategy Statement and Macro-economic Framework Statement along with Union budget in Parliament every year.

The Medium-Term Fiscal Policy statement will set-forth a three-year rolling target for prescribed fiscal indicators with specification of underlying assumptions. It will also include an assessment of sustainability relating to the balance between revenue receipts and revenue expenditure; use of capital receipts including market borrowings for generating productive assets.

The Fiscal Policy Strategy statement will contain policies of the Central Government for the ensuing year relating to taxation, expenditure, market borrowings and other liabilities, lending and investments, pricing of administered goods and services, securities and description of other activities such as underwriting and guarantees which have potential budgetary implications.

The statement will also contain rationale for any major deviation in fiscal measures pertaining to taxation, subsidy, expenditure, administered pricing and borrowings. It will also present an evaluation as to how the current policies are in conformity with the fiscal management principles set out in the Medium-term Fiscal Statement.

The Bill also permits deviation from the fiscal targets to deal with unforeseen demands on the finances on account of national security or natural calamities of national dimension.

The bill directs the government to reduce revenue deficit and fiscal deficit by 1.5 per cent or more of the estimated GDP at the end of each financial year beginning April 1, 2001. The bill limits the amount of government guarantees to 1.5 per cent of the estimated GDP in any financial year.

As per the Bill, the government will have to restrict total liabilities (including external debt at current exchange rate) of the government to 50 per cent of the estimated GDP by 2011.

The Bill has also recommended greater transparency in fiscal operations and urged the government to do away with secrecy in preparation of annual budget, as far as practicable.

The statement of objects and reasons for the Bill points out that the total liabilities of the Central Government are about Rs 12,00,000 crore, six times its current annual revenue, to which over Rs 1,00,000 crore are being added every year with annual interest burden of about Rs 1,00,000 crore.

The interest payments constitute about one-third of the central government's total expenditure and pre-empt nearly half of its annual revenue.

The statement says that the central government is financing its current expenditure through its borrowings although the fiscal discipline requires that borrowings be limited to only to productive investments.

Main provisions

Eliminate revenue deficit by 2006

Reduce fiscal deficit to 2 per cent of GDP by 2006

Prohibit direct borrowings from RBI after 3 year

Central government to cut expenditure authorisations

Policy statements to be tabled alongwith budget

Finance ministry to review fiscal position every quarter

Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.


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