Does the Indian fiscal situation call for the establishment of a fiscal council? Evaluate its utility in addressing the freebies issue.

A fiscal council is an independent fiscal institution with a mandate to promote stable and sustainable public finances. The Institution assists in calibrating sustainable fiscal policy by making an objective and scientific analysis. The freebies debate has highlighted the need for a body to keep an eye on the fiscal excesses by the governments.

Recommendations for establishment of fiscal council:

• The 15th finance commission recommended the establishment of a fiscal council.
• The FRBM review committee also recommended the establishment of a fiscal council.

Need of fiscal council:

• Mismanaged budgets – over estimated revenue growth and under estimated expenditure growth.
• Increasing deficits.
• Tax maladministration.
• Dressing up fiscal numbers with different cover up strategies.
• Coordination between GST council and finance commission.
• Limiting the borrowings by the central government.

Benefits:

• More transparency.
• Discourage populist shifts of government expenditure.
• Raising public awareness.
• Boost accuracy.
• More accountability.
• Enhance the effectiveness of FRBM.

Challenges:

• Dilutes the finance ministry’s authority.
• Executive control of elected government.

Dealing with freebies issue:

• The political parties resort to promising freebies like free power, free transportation to woo voters.
• However, it raises several economic problems.
• Many state governments, despite facing a financial crunch, continue to distribute freebies, which hampers the economy in the long run.
• The present political scenario in the country is such that the political parties are forced to promise freebies while competing with opposition parties.
• An independent fiscal council can study and analyze the impact of freebies on different government’s budgets.

Conclusion:

There is a need for systems and institutions to ensure checks and balances in the system for greater good. The government borrows and spends more in order to support its welfare programmes or sometimes to further their political agendas. This means a steep rise in debt which will jeopardize medium-term growth prospects, an issue prominently flanked by all the rating agencies in the recent evaluations. Fiscal council will help in improving comprehensiveness, transparency and accountability of budgetary data and will fix this issue.

Topics: GS-III: Indian Economy Issues Relating to Planning