From UPSC perspective, the following things are important :
Prelims level : Not much
Mains level : Paper 3- Fiscal Council and why it won't be the solution
Why there is a need for Fiscal Council?
- With a complex polity and manifold development challenges, India need institutional mechanisms for prudent fiscal practices.
- An independent fiscal council can bring about much needed transparency and accountability in fiscal processes across the federal polity.
- International experience suggests that a fiscal council improves the quality of debate on public finance, and that, in turn, helps build public opinion favourable to fiscal discipline.
- In a globalised world of enormous capital flows, market volatility across the world and especially in emerging markets, in response to monetary policy changes in major economies, and geopolitical tensions that ebb and flow, causing currencies and commodity prices to swing, countries like India need macroeconomic management as an active function round the year.
- Also, it is supposed to report to the parliament regarding the practicability of government forecasts in the budget. This will make executive more responsible in budget preparation.
- For the last eight years the projections of the government has fallen short by a consistent 10 percent, leading to fund cuts in the middle of the year. Thus, an independent Fiscal council would evaluate budget proposals and forecasts using objective criteria.
- This would also boost confidence in global credit rating agencies about government’s fiscal commitment.