ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Fiscal Responsibility : Why an Act?


Finance Minister, Yashwant Sinha, while presenting his budget for 2000-01, announced that he had appointed a committee to examine the establishment of "a strong institutional mechanism embodied in a Fiscal Responsibility Act" as "suggested in the Agenda in Governance of the National Democratic Alliance" and make suitable recommendations. He expressed the hope that he would be in a position "to bring the necessary legislative proposals" to parliament during the course of the year. Sinha did not refer to the Congress manifesto which too, while speaking of actively exploring the feasibility of a constitutional ceiling on the growth of public debt, promises to introduce a Fiscal Responsibility Act with the qualification however that "fiscal discipline will not be at the cost of investment in essential social and physical infrastructure".

Though the two major political groupings, while calling for fiscal discipline, seem to be agreed on the mechanism necessary to ensure its observance, namely, a Fiscal Responsibility Act, there has been virtually no discussion on the choice of the instrumentality envisaged. The RBI has, no doubt, been in the forefront in advocating resort to statutory limitation of government borrowing – a major fiscal instrument that a government can use for demand management – without provoking any debate among professional economists. It is therefore understandable perhaps that the major political groupings have accepted unquestioningly the case for imposing a statutory limitation on government borrowing.

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