Context:
In their research paper, the National Council of Applied Economic Research (NCAER) has suggested that Indian States set up independent fiscal councils to enhance institutional capacity in order to improve financial governance.
Key Highlights:
Role of State Level Fiscal Councils
- Members would include academics, participants in financial markets, and other experts.
- They would assess the state government’s estimates for revenues and expenditures.
- Provide independent estimates and analyses to assess fiscal sustainability.
- Analyze contingent liabilities and provide transparency on potential financial risks.
An Example from Abroad: EU Model
- At the Union level, the European Commission performs a quasifiscal council role.
- Individual fiscal councils exist in every EU member state to critique the budget related forecasts.
- NCAER suggested that India can set up a similar model at the state level.
Earlier Recommendations for a Central Fiscal Council
- Various bodies, including the Thirteenth and Fourteenth Finance Commissions, recommended the formation of a Central Fiscal Council.
- The N.K. Singh Committee on FRBM also called for the establishment of such an institution.
- However, the Centre rejected these recommendations, concerned about powers to the finance ministry.
Need for Forensic Analysis of Fiscal Deficits
- The report calls for a surgical analysis of revenue shortfalls and spending overruns of the worst performing states.
- It is important to learn from past mistakes in order to avoid such fiscal crises in the future.
If set up, these councils will encourage fiscal discipline and reduce fiscal misgovernance at the state level.
