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Shaji Vikraman
Hema Ramakrishnan

NEW DELHI, March 31

THE Government's failure to meet the budgeted deficit targets over the last few years has forced the Finance Ministry to consider pushing back the five-year deadline for the elimination of revenue deficit proposed in the Fiscal Responsibility and Budget Management Bill (FRBM).

The Finance Ministry is also set to recommend to the Cabinet a deferment of the three-year time-frame proposed in the FRBM Bill for prohibition of direct borrowings by the Centre from the Reserve Bank of India after three years.

The Bill proposed a ban on RBI subscribing to the primary issues by the Government except by way of advances to meet temporary cash needs in certain circumstances.

With the revenue deficit estimated at four per cent of the GDP in the revised estimates for 2001-02 and 3.8 per cent in 2002-03, the Finance Ministry is of the view that it would be prudent to push back the time frame for wiping out revenue deficit by one more year.

In the official amendments to the FRBM Bill to be forwarded to the Union Cabinet shortly, the Ministry will recommend numerical ceilings on both revenue and fiscal deficits. But these were to be incorporated in the regulations to be framed after the passage of the legislation, said a senior Finance Ministry official.

"A blanket ban on borrowings from RBI is not feasible when fiscal deficit continues to be high. Our view is that the ban should be co-terminous with the time frame stipulated for reduction in fiscal deficit,'' the official pointed out.

The Standing Committee of Parliament, which scrutinised the FRBM Bill, in fact, had rejected the proposed blanket ban on direct borrowings from RBI as it reckoned that such a ban could lead to higher market borrowings by the Government in the event of any failure to achieve the mandated fiscal deficit reduction targets.

When the FRBM Bill was first introduced in 2000, the Government had proposed a reduction in the fiscal deficit by half a per cent of the GDP annually. The Bill had also sought to restrict guarantees to one and a half per cent of the estimated gross domestic product (GDP) in any financial year.

It had further proposed that the total liabilities (including external debt at current exchange rate) at the end of a financial year should not exceed 50 per cent of the GDP for that year.

The Standing Committee of Parliament wanted the axe to be wielded on crucial clauses in the Bill including the one specifying the levels of revenue and fiscal deficit and the time-frame of five years set for it.

The Finance Ministry is clear that these recommendations cannot be accepted in toto as it would dilute the entire statute.

Officials said that the Ministry was not averse to accepting the recommendation of the Standing Committee to provide greater flexibility in the clause which provides the Government the leeway to breach the mandated ceilings in the event of a national calamity or a threat to national security.

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