The newscard highlights the need of bipartisan, independent Fiscal Council to report and analyse FRBM discrepancies by the Government.

Try this question for mains:
Q.Fiscal Council is an important institution needed to complement the rule-based fiscal policy. Discuss.

What is a Fiscal Council?

• A Fiscal Council is an independent fiscal institution (IFI) with a mandate to promote stable and sustainable public finances.
• They aim to provide nonpartisan oversight of fiscal performance and/or advice and guidance — from either a positive or normative perspective — on key aspects of fiscal policy.
• These institutions assist in calibrating sustainable fiscal policy by making an objective and scientific analysis.

Voices for a Fiscal Council

• The 13th Finance Commission recommended that a committee be appointed by the Ministry of Finance which should eventually transform itself into a Fiscal Council.
• The FC expected it to conduct an annual independent public review of FRBM compliance, including a review of the fiscal impact of policy decisions.
• The FRBM Review Committee too made a similar recommendation underlining the need for an independent review by the Finance Ministry appointing the Council.

Why need a fiscal council?

(1)Burgeoning deficits

• For the current year, even without any additional fiscal stimulus, the deficit is estimated at about 7% of GDP as against 3.5% estimated in the Budget due to a sharp decline in revenues.
• The consolidated deficit of the Union and States could be as high as 12% of GDP and the overall debt could go up to 85%.
• Thus it is necessary that the government must return to a credible fiscal consolidation path once the crisis gets over.

(2)Transparency issues

• Besides large deficits and debt, there are questions of comprehensiveness, transparency and accountability in the Budgets.
• The practice of repeated postponement of targets, timely non-settlement of bill payments and off Budget financing to show lower deficits has been common.
• The report of the CAG of India in 2018 has highlighted various advances done to keep the liabilities hidden.

Fiscal Council can be a game changer. How?

• First, an unbiased report to Parliament helps to raise the level of debate and brings in greater transparency and accountability.
• Secondly, costing of various policies and programmes can help to promote transparency over the political cycle to discourage populist shifts in fiscal policy and improve accountability.
• Third, scientific estimates of the cost of programmes and assessment of forecasts could help in raising public awareness about their fiscal implications and make people understand the nature of budgetary constraint.
• Finally, the Council will work as a conscience keeper in monitoring rule-based policies, and in raising awareness and the level of debate within and outside Parliament.

Issues meddling between

• The problem is that a Council created by the Finance Ministry and reporting to it can hardly be expected to be independent.

Diverse role to play ahead

• According to the IMF, there were 36 countries with IFIs in 2014 and more have been established since.
• While most of the IFIs are in advanced countries, emerging economies too have also shown growing interest in them.
• Although their common agenda has been to function as watchdogs, there is considerable diversity in their structure and functions.
• Over the years, monitoring compliance with fiscal rules and costing policies and programmes have become major tasks of these councils.

Way forward

• When the markets fail, governments have to intervene.
• Whenever governments seem obstructed, it is here that we need systems and institutions to ensure checks and balances.
• In that respect, a Fiscal Council is an important institution needed to complement the rule-based fiscal policy.

Conclusion

• Of course, it is not a ‘silver bullet’; if there is no political will, the institution would be less effective, and if there is political will, there is no need for such an institution.
• That is also true of the FRBM Act. While we cannot state that the FRBM Act has been an unqualified success, it has also not been an abject failure either.