Panel disfavours ban on Centre's borrowing from RBI

By Our Special Correspondent

NEW DELHI, NOV. 23. The Parliamentary Standing Committee on Finance has suggested some alterations to the Fiscal Responsibility and Budget Management Bill, 2000, particularly in respect of numerical ceilings and timeframe for the reduction in fiscal and revenue deficit of the Central Government.

The Committee has also recommended doing away with the blanket ban on Centre's borrowing from the Reserve Bank of India as contained in the Bill, on the ground that this could lead to high market borrowing by the Government.

The Committee felt that in the event of failure of the Government to achieve the specified levels of the fiscal deficit, such a blanket ban might lead to higher market borrowing by the Centre that might cause rise in their interest burden and adversely affect overall economic development.

The report presented to Parliament today said ``to bind the Government or to tie their hands may not necessarily be in the best interest of the State.''

The Committee, therefore, recommended that the lack of flexibility in the existing clause may be done away with.

On other clauses in the Bill, the Committee felt that the numerical ceilings and the timeframe prescribed for revenue and fiscal deficits ``do not seem to be pragmatic and hence difficult to attain.''

The Committee recommended the deletion of the provisions in the proposed legislation on numerical ceilings as well as timeframe set for reduction in revenue and fiscal deficits, the amount of guarantees to be given by the Central Government and the total liabilities of the Central Government.

It said the revenue and fiscal deficits might be kept or maintained at prudent levels, which might be defined and incorporated under rules to be made under Clause 8 of the Bill.

On the rising deficit, the Committee said planned deficit financing per se was not harmful to the economy as long as it resulted in the creation of the assets and enough returns from these assets to the economy were large.

``At the same time the Committee should not lose sight of the fact that fiscal discipline is a sin qua non for sustainable economic development.''

But numerical ceilings and the timeframe set for attaining the said levels would induce rigidity into the decision making process, thereby depriving the Government of the flexibility needed to respond to the exigencies in an appropriate manner to serve the national interest best, the Committee said in its report.

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