Consider the following statements:The Fiscal Responsibility and Budget Management (FRBM) Review Comm

Question

Consider the following statements:The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report has recommended a debt to GDP ratio of 60% for the general (combined) government by 2023, comprising 40% for the Central Government and 20% for the State Governments.The Central Government has domestic liabilities of 21% of GDP as compared to that of 49% of GDP of the State Governments.As per the Constitution of India, it is mandatory for a State to take the Central Government's consent for raising any loan if the former owes any outstanding liabilities to the latter.Which of the statements given above is/are correct?

Accepted Answer

The FRBM Review Committee (Chairperson: Mr. N.K. Singh) submitted its report in January 2017. The Report was made public in April 2017. The Committee suggested using debt as the primary target for fiscal policy. A debt to GDP ratio of 60% should be targeted with a 40% limit for the centre and 20% limit for the states. The targeted debt to GDP ratio should be achieved by 2023. Hence, statement 1 is correct.The Central Government has domestic liabilities of 46.1% of GDP (2016-17) and as a per cent of GDP, States’ liabilities increased to 23.2% per cent at end-March 2016. Hence, statement 2 is not correct.The Constitution of India empowers State Governments to borrow only from domestic sources (Article 293(1)). Further, as long as a State has outstanding borrowings from the Central Government, it is required to obtain Central Government's prior approval before incurring debt (Article 293 (3)). Hence, statement 3 is correct.