Context: Fiscal council was first recommended by the Thirteenth Finance Commission and was subsequently endorsed by the Fourteenth Finance Commission and then by the FRBM (Fiscal Responsibility and Budget Management) Review Committee headed by N.K. Singh.

• Fiscal Council: It is a permanent agency with a mandate to independently assess the government’s fiscal plans and projections against parameters of macroeconomic sustainability, and put out its findings in the public domain.

Reasons for need of a Fiscal Council 

• To maintain government’s credibility in the market: Government needs to borrow to create demand in economy which may not be appreciated by rating agencies. The government can signal its virtue to market in post-corona world, by establishing fiscal council as a n institutional mechanism for enforcing fiscal discipline.
• To aid Parliament: Fiscal council will give an independent and expert assessment of the government’s fiscal stance, and thereby aid an informed debate in Parliament.
• To act as a watchdog: It will prevent the government from gambling with the fiscal rules through creative accounting.

Arguments against the need of Fiscal Council

• Failure of FRBM: The FRBM enjoins the government to conform to pre-set fiscal targets, and in the event of failure to do so, to explain the reasons for deviation under ‘Fiscal Policy Strategy Statement’ (FPSS). Despite of this, there is in-depth discussion in Parliament on the government’s fiscal stance.
• Blame game and shifting of accountability: The fiscal council will give macroeconomic forecasts which the Finance Ministry is expected to use for the budget. Forcing the Finance Ministry to use someone else’s estimates will dilute its accountability. If the estimates go awry, it will simply shift the blame to the fiscal council.
• Strengthen existing watchdogs: There is already an institutional mechanism by way of the Comptroller and Auditor General (CAG) audit to check government’s fiscal expenditure. If that mechanism has lost its teeth, then fixing it that rather than creating another costly bureaucratic structure is the prudent solution.

Committees recommending establishment of Fiscal Council

• In 2017, the N.K. Singh committee on the review of fiscal rules set up by the finance ministry suggested the creation of an independent fiscal council that would provide forecasts and advise the government on whether conditions exist for deviation from the mandated fiscal rules.
• In 2018, the D.K. Srivastava committee on fiscal statistics established by the National Statistical Commission (NSC) also suggested the establishment of a fiscal council that could co-ordinate with all levels of government to provide harmonized fiscal statistics across governmental levels and provide an annual assessment of overall public sector borrowing requirements.
• These recommendations follow similar recommendations from the 13th and 14th finance commissions, which also advocated the establishment of independent fiscal agencies to review the government’s adherence to fiscal rules, and to provide independent assessments of budget proposals.