India: Fiscal panel recommendations - Nomura

Analysts at Nomura note that the detailed report of the five-member Fiscal Responsibility and Budget Management (FRBM) review panel constituted to recommend a new fiscal consolidation path was made public recently and lists them down.

Key Quotes

“The committee’s main recommendations include: (1) focus on debt-to-GDP as the principal anchor for fiscal consolidation (combined with a fiscal deficit trajectory that is operationally consistent with it); (2) lower debt-to-GDP to 60% (40% centre, 20% states) by FY23 from 66% in FY16; (3) lower the central government’s fiscal deficit from 3.5% of GDP in FY17 to 3% in FY18-FY20, 2.8% in FY21, 2.6% in FY22 and 2.5% in FY23; (4) lower the revenue deficit to GDP ratio steadily by 0.25pp each year; (5) set a debt ceiling of 20% for states with modalities left to the Fifteenth finance commission; (6) include an escape and buoyancy clause; and (7) set up a Fiscal Council. Overall, we judge the direction of the committee’s recommendations to be laudable, though we think the fiscal consolidation path could have been more aggressive than currently recommended. The government has placed this report for public comments and we expect it to adopt many of these recommendations.”