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First Meeting of XVFC’s Committee on Fiscal Consolidation Roadmap held through VC; GDP growth remains -6% to 1% for FY21

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First Meeting of the 15th Finance CommissionOn May 20, 2020, the first meeting of the 15th Finance Commission’s (XVFC) committee on Fiscal Consolidation Roadmap was held through video conferencing (VC).  The committee headed by Nand Kishore (NK) Singh has recommended the judgement of Reserve Bank of India (RBI) on monetisation of fiscal deficit, as RBI is government’s principal debt manager.

  • The committee supported the Centre’s decision of allowing states to borrow up to 5% of gross state domestic product (GSDP) as it has ended the asymmetry between the Centre and states on the level of borrowing. It will improve the medium-term growth potential of states and be able to finish their debt.
  • It should be noted that as a part of the economic package, the Centre on May 17, 2020 raised the borrowing limit of states from 3 % of GSDP to 5% in 2020-21.
  • The committee also recommended that Centre and the states should not cut expenditures drastically this year (FY21), and keep the capital outlays elevated in order to tackle the unprecedented situation caused by Covid-19.

Background of XVFC committee:

The major mandate of XVFC is to work out the fiscal consolidation roadmap of the Central and state governments for the period, 2021-22 to 2025-26. This task has been complicated by the extra-ordinary situation caused by the spread of the COVID-19 pandemic. Therefore on March 18, 2020, the Finance Commission constituted a committee to review the Fiscal Consolidation Roadmap of the General Government under the chairmanship of N.K. Singh, who is also the Chairman of the 15th Finance Commission.

  • According to the existing fiscal consolidation roadmap, India’s fiscal deficit had to touch 3% of gross domestic product by 2020-21. However, Finance Minister Nirmala Sitharaman invoked an escape clause of 0.5% points in her Budget speech, thereby increasing the fiscal deficit target to 3.5% of GDP.

India’s GDP growth remains -6% to 1% in FY21

The Committee also estimated India’s GDP growth to -6% to 1% in the financial year 2020-21. The accurate figures will be assessed only after growth numbers of the fourth quarter of 2019-20 and the first quarter of 2020-21 are out which will be the basis of calculations.

  • The nominal GDP will accelerate to 4-5% in FY2021-22.

Participants of Virtual XVFC committee meet: The meeting was attended by N K Singh (Chairman), Ajay Jha and Anoop Singh, Members of the 15th Finance Commission, Chief Economic Adviser Krishnamurthy Subramanian, representatives of some states, and economists Sajjid Z. Chinoy and Prachi Mishra.

About XVFC:
It will give recommendations for devolution of taxes and other fiscal matters for five years from 1st April 2020 to 31 March 2025. The final report will be submitted by October 30, 2020.
Formulated– 2017
Parent department– Ministry of Finance
Chairman– NK Singh
Members– Ajay Narayan Jha,  Prof. Anoop Singh, Dr. Ashok Lahiri, Member, and Prof. Ramesh Chand.