Importance of Being Prudent

The Importance of Being Prudent

The Finance Minister presenting the Union Budget for the current FY said that he had chosen to be prudent in sticking to the fiscal consolidation roadmap rather than go for an expansionary budget. In addition, the government set up the N K Singh Committee to review the working of the Fiscal Responsibility & Budget Management Act (FRBM) and suggest the way forward. Back in 2012 the Kelkar Committee had recommended the roadmap that the government is currently following. 

The committee has also been tasked with exploring the option of having a fiscal deficit target range rather than a point number, and to consider counter-cyclical fiscal policy targets. Both of these options are aimed to creating flexibility in case of a cyclical downturn in the economy leading to a fall in tax revenue. Under the current system, a shortfall in tax collection has to be made up by a cut in expenditure. In recent years these expenditure cuts have been to capital expenditure / plan expenditure, which then have the potential to further accentuate the slowdown leading to a vicious cycle.

The committee has submitted its recommendations to the Finance Ministry and the same are expected to be discussed during the presentation of the upcoming Union Budget on the 1st of February..........

Read the full note.