Chairman of 15th Finance Commission, NK Singh has recommended setting up of institutional mechanism like a ‘Fiscal Council’ to fill major institutional gap in India's Fiscal System.
ABOUT FISCAL COUNCIL
A fiscal council is an independent and non-partisan agency set up to publicly assesses government’s fiscal performance against its stated objectives. Fiscal Councils can serve both ex-ante and ex-post functions such as
- Producing independent forecasts related to GDP growth, tax buoyancy, inflation rate.
- Review the government’s forecasts and assumptions related to tax collections, Fiscal Deficit, GDP Growth etc (an ex-ante function).
- Monitoring governments’ fiscal performance including adherence to fiscal rules (an ex post function)
International Experience with Fiscal Council: Fiscal councils can improve fiscal outcomes and accuracy related to government's forecasts related to fiscal parameters. Example: United Kingdom (Office of Budget Responsibility), USA (Congressional Budget Office)
Committees related to Fiscal Council: FRBM Review committee headed by N.K Singh and D.K. Srivastava Committee on Fiscal Statistics have proposed to set up independent Fiscal Council in India.
NEED FOR FISCAL COUNCIL IN INDIA
- Promotes coordination among multiple agencies involved in collection of the fiscal data.
- Produce Independent forecasts related to various parameters such as GDP, Tax collection, Deficits etc.
- Advise the Government on the formulation of Budget.
- Monitor Government's fiscal performance to FRBM Targets
- Ensure greater accountability of the Government to the Parliament.
- Act as counterpart to the Monetary Policy Committee
- Address the problem of Off Budget Financing.
ROLE OF FISCAL COUNCIL IN INDIA
- Fiscal Data Coordinator: As a fiscal data coordinator, Fiscal Council should have responsibility of compiling and collating centre, state, and local government fiscal data and provide individual and consolidated fiscal accounts of governments in India on a timely basis and make such data accessible to governments and public.
- Fiscal Data Analyst: Utilize compiled fiscal data to provide valuable insights into the underlying fiscal trends and highlight their policy significance.
- Fiscal Consolidation Path Monitor: Central and state governments follow their respective fiscal consolidation paths according to targets set under their FRBM Acts. Fiscal Council should monitor compliance of these targets by Central and State Governments. It should highlight deviations in targets by publishing quarterly and annual reports.
- Fiscal Policy Advisor: Fiscal Council should provide guidance to central and state governments on appropriate fiscal policy interventions aimed at improving growth and macro-stabilization outcomes.