TOPIC OF THE DAY:-“Diluting recommendations”
In the proposed amendment to the FRBM Act, key recommendations of the review committee were not accepted. It had wanted the target at which the fiscal deficit to GDP ratio was to be stabilised set at 2.5%. The committee had derived the 2.5% target by reference to the annual estimate of available investible resources at 10% of GDP consisting of surplus savings of the household sector and sustainable net capital inflows. It assessed that half of it, that is 5%, could be pre-emptively shared equally by the Central and State governments, keeping their fiscal deficits at 2.5% of GDP each, leaving the balance of 5% for public sector and corporate borrowing. The government apparently did not accept this framework and continued with the 3% target. If this was to be the case, we might as well have continued with the present FRBM Act. In fact, it can be shown that were the government to abide by the 3% mandate beyond 2020-21, the debt to GDP ratio would come down to 40% by 2024-25 with a nominal growth assumption of 11.5%. Thus, specifying the fiscal deficit target of 3% would have been enough to achieve the debt target.
Second, the committee had not given up on the desirability of achieving revenue account balance. It had specified a revenue deficit glide path, reaching 0.8% by 2022-23. This too was not accepted. The target of revenue account balance is well recognised in the so-called ‘golden rule’ wherein a country may borrow as long as the entire borrowing is spent on capital spending. This can only be achieved by keeping the revenue deficit to zero. In the Indian context, the revenue deficit with some adjustments reflects government dis-savings. Unless government dis-savings are eliminated, it will be difficult to reverse the trend of a falling savings rate.
Third, the Central government did not accept another recommendation of setting up a fiscal council, which could independently examine the economic case and justification for deviating from the specified targets. Unconstrained fiscal flexibility, both in approach and statutory provisions, adds to a climate of avoidable fiscal risks.
Fourth, in the committee’s recommendations, the debt-GDP levels of 60% and 40% of GDP for the general and Central governments, respectively, were to be achieved by 2022-23. These target dates have been shifted to 2024-25.
MEANINGS AND WORDS
Meaning: The process of passing legislation.
Example: “The enactment of equal pay legislation”
Synonyms: Passing, Making law
Meaning: Match or surpass (a person or achievement), typically by imitation.
Example: “Most rulers wished to emulate Alexander the Great”
Synonyms: Imitate, Copy
Meaning: Make minor changes to (a text, piece of legislation, etc.) in order to make it fairer or more accurate, or to reflect changing circumstances.
Example: “The rule was amended to apply only to non-members”
Synonyms: Revise, Alter
Meaning: Required, permitted, or enacted by statute.
Example: “Statutory controls over prices”
Meaning: Make (a liquid) thinner or weaker by adding water or another solvent to it.
Example: “Bleach can be diluted with cold water”
Synonyms: Make weaker, Weaken
Meaning: Direct attention to (a problem or situation).
Example: “The protest spotlighted the overcrowding in British prisons”
Synonyms: Focus attention on, highlight
Antonyms: Play down
Meaning: The action of departing from an established course or accepted standard.
Example: “Deviation from a norm”
Synonyms: Divergence, Digression
Meaning: The action or process of slipping or subsiding.
Example: “£16 million has been spent on cracks and slippage”
Meaning: An amount of something left over when requirements have been met; an excess of production or supply.
Example: “Exports of food surpluses”
Synonyms: Excess, Surfeit
Antonyms: Dearth, Shortage, lack
Meaning: If something is pre-emptive, it is done before other people can act, especially to prevent them from doing something else.
Example: “The Treasury has decided to raise interest rates as a pre-emptive measure against inflation”
Meaning: Move (something) with a smooth continuous motion.
Example: “Slide your hands firmly across the shoulders then glide them down”
Synonyms: Slide, Move smoothly
12) Golden rule
Meaning: A basic principle which should always be followed to ensure success in general or in a particular activity.
Meaning: Not restricted or limited.
Example: “Unconstrained growth”
Meaning: Having or showing a strong desire and determination to succeed.
Example: “A ruthlessly ambitious woman”
Synonyms: Aspiring, Determined
Antonyms: Unambitious, Lazy
Meaning: An amount of money spent on something.
Example: “A modest outlay on local advertising”
Synonyms: Expenditure, Expenses
Meaning: Demand or specify (a requirement), typically as part of an agreement.
Example: “He stipulated certain conditions before their marriage”
Synonyms: Specify, Set down
Meaning: A separate part of a legal agreement, report, etc. that gives extra information.
Example: “The Inquiry will result in a public report but it may be necessary to present some material in a confidential annexure”
Meaning: Subject to chance.
Example: “The contingent nature of the job”
Synonyms: Chance, Accidental
Meaning: Anxiety; Worry.
Example: “Carole gazed at her with concern”
Synonyms: Anxiety, Worry
Antonyms: Serenity, Peace of mind
Meaning: The quality of behaving or speaking in such a way as to avoid causing offence or revealing confidential information.
Example: “She knew she could rely on his discretion”
Synonyms: Circumspection, Care
Antonyms: Indiscretion, Rashness