Restoring Fiscal Balance through Legislative Fiat

If the choice is to be a good one, both the reasoning must be true and desire right; and the desire must pursue the same things that reasoning asserts. – Aristotle, The Nicomachean Ethics.

The Fiscal Responsibility and Budget Management Bill (FRA),proposed by the ministry of finance, constitutes a landmark in the history of budgetary operations in India. The main objectives of the bill are by no means new and have figured prominently in successive budgetary statements since 1991. But in recent years the actual figures for the major fiscal indicators fell far short of the targets set in the annual budgets. It is in this context that the Committee on Fiscal Responsibility Legislation was constituted in January 2000 and the government of India is seeking in earnest a speedy enactment of the bill incorporating the committee’s recommendations [GoI 2000]. Our discussion of the bill is organised as follows. Section I summarises the major provisions and objectives of the bill. In the three subsequent sections we examine how far these provisions are likely to help or hinder in promoting the primary objectives, viz, inter-generational equity, macroeconomic stabilisation and growth. The final section lists the main conclusions of our critique.