Fiscal consolidation is a policy adopted by the government to reduce losses. Its main objective is to reduce the administrative cost of the government.
The Finance Commission has constituted a committee under the chairmanship of NK Singh in order to create a road map for fiscal consolidation for the Center and the States. The Finance Commission submitted its first report to the Government of India in February 2020.
The Finance Commission will submit its final report by October 30, covering the years 2021-22 to 2025-26. NK Singh Committee will recommend the definition of deficit and debt. This committee will also define contingent liabilities of PSUs.
What s Fiscal Consolidation?
Fiscal consolidation is a policy adopted by the government to reduce losses. Its main objective is to reduce the administrative cost of the government. The Fiscal Responsibility and Budget Management Act, 2003 (FRBMA) is the best example for the Government of India’s fiscal consolidation.
Why to amend FRBMA?
When this law was enacted in the year 2003, the size of the Indian economy was quite small. Our economy was not as favorable for foreign investment as it is today. The per capita income in India was much lower than other developing countries.
But today the situation has changed a lot. India has now become a middle income country. Today, the Indian economy has become much larger, open and growing than any other economy. Keeping all these things in mind, a need was felt to change the FRBMA law and to fulfill this objective N. K. Singh Committee was formed. This committee had submitted its recommendations only at the end of last year but recently they have been made public.
The Act aims to reduce the fiscal deficit to 3% of GDP. It aimed to eliminate the deficit of Indian economy. However, this could not be achieved due to international financial crisis. Later, a review committee was formed in 2016 to suggest changes to the Act under the leadership of NK Singh.