FRBM Ball Now in Government Court

FRBM Ball Now in Government Court

Fiscal policy, together with structural reforms, will have to play an even bigger role than before in inflation control

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Photo: Shekhar GhoshPhoto: Shekhar Ghosh
D.K. Joshi
  • Apr 15, 2017,
  • Updated Apr 20, 2017 2:24 PM IST

Per se, there's nothing wrong in a government running a deficit. They do as a norm, to finance revenue and expenditure mismatches and also to finance investments. The problem arises when the deficit level become too high and chronic, leading to an explosive debt-to-GDP ratio and eventual insolvency.

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To prevent governments from falling into such a debt trap, fiscal responsibility legislation are enacted. The fiscal responsibility legislation also promote transparency and accountability while reducing wiggle room for populist policies.

The Fiscal Responsibility and Budget Management Bill (FRBM) Committee, chaired by N.K Singh, emphasises the importance of fiscal discipline when it notes in the opening paragraph of the report: "The maxim that 'you cannot spend your way to prosperity' is now widely accepted. Fiscal policies must, therefore, be embedded in caution than exuberance. In restraint than profligacy." That set the tone for the recommendations that follow in the report.

Photo: Ajay Thakuri

Per se, there's nothing wrong in a government running a deficit. They do as a norm, to finance revenue and expenditure mismatches and also to finance investments. The problem arises when the deficit level become too high and chronic, leading to an explosive debt-to-GDP ratio and eventual insolvency.

Advertisement

To prevent governments from falling into such a debt trap, fiscal responsibility legislation are enacted. The fiscal responsibility legislation also promote transparency and accountability while reducing wiggle room for populist policies.

The Fiscal Responsibility and Budget Management Bill (FRBM) Committee, chaired by N.K Singh, emphasises the importance of fiscal discipline when it notes in the opening paragraph of the report: "The maxim that 'you cannot spend your way to prosperity' is now widely accepted. Fiscal policies must, therefore, be embedded in caution than exuberance. In restraint than profligacy." That set the tone for the recommendations that follow in the report.

Photo: Ajay Thakuri

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