Recently, Report by 15th Finance Commission was tabled in the Parliament. The report provided range for the fiscal deficit and debt path of both the Union and States.

Fiscal Deficit

  • Target for Centre: Report recommended that the Centre brings down its fiscal deficit to 4 per cent of Gross Domestic Product GDP by 2025-26 against 6.8 per cent in FY22.
  • Target for States: For states, Report recommended fiscal deficit at 4 per cent of Gross State Domestic Product in 2021-22, 3.5 per cent in the following year and 3 per cent for the coming 3 years.

Borrowing Ceilings for States

  • Because of Article 293 of the Constitution of India, State Governments operate under borrowing limits and, hence, budget constraints, approved by the Union Government.
    • The normal limit for net borrowing may be fixed at 4 per cent of Gross State Domestic Product (GSDP) in 2021-22, 3.5 per cent in 2022-23 and be maintained at 3 per cent of GSDP from 2023-24 to 2025-26.
    • An additional borrowing of 0.5 per cent of GSDP to be allowed to the States in case they meet the criteria for power sector reforms.

Better Monitoring of Centrally Sponsored Scheme

  • threshold amount of annual appropriation should be fixed below which the funding for a CSS may be stopped.
  • Below the stipulated threshold, the administration department should justify the need for the continuation of the scheme.
    • As the life cycle of ongoing schemes has been made co-terminus with the cycle of Finance Commissions, third-party evaluation of all CSSs should be completed within a stipulated time frame.

New FRBM Framework

  • The Fiscal Responsibility and Budget Management Act (FRBM Act of 2003needs a major restructuring and recommended that the time-table for defining and achieving debt sustainability may be examined by a High-powered Inter-governmental Group.
    • This High-powered Group can craft the new FRBM framework and oversee its implementation.
    • State Governments may explore formation of independent public debt management cells which will chart their borrowing programme efficiently.

15th Finance Commission Recommendations for Fiscal Consolidation 15th Finance Commission Recommendations for Fiscal Consolidation