The Chairman of the Fifteenth Finance Commission Chairman N K Singh has rightly pitched for a fiscal council to enforce fiscal rules and better manage public debt.

“The rules of the game should be same for both (states and Centre). For state government liabilities, Article 293 (3) provides a constitutional check over borrowings. But there are no such restriction on the Centre. I feel that it is time we have an alternative institutional mechanism like Fiscal Council to enforce fiscal rules and keep a check on Centre’s fiscal consolidation,” Singh said at the launch of the book ‘Indian Fiscal Federalism’ authored by former RBI Governor Y V Reddy.

The idea has also found resonance with eminent economists including the former RBI Governor Raghuram Rajan who reckons than an independent fiscal council will make the budget-making process more ‘honest’.

An institutional mechanism for sound fiscal practices is a good idea. It will bring in transparency, instil confidence among domestic and foreign investors and improve policy outcomes. It would prevent practices such accounting jugglery to show the Centre’s finances in a better shape, undermining the sanctity of the budget numbers.

The Comptroller and Auditor General of India had also underscored the need for proper disclosures, saying that budgets often understate fiscal deficits by misusing accounting loopholes.

The recommendation to set up an autonomous council featured prominently in the Fiscal Responsibility and Budget Management Review Committee, chaired earlier by NK Singh. The 13th and 14th finance commissions too had favoured the setting up of a Council to keep tabs on budget forecasts and their veracity. But successive governments failed to act on the recommendations for resons best known to them.

India must act now, emulating many countries across the world that have set up such councils for better oversight and to build public opinion that veers towards to greater fiscal discipline. Our debt-to-GDP ratio of the states and the Centre combined is also way too high at 70%. Reviewing fiscal discipline rules should aim at lowering the level to 60% of GDP by 2023.

The Council’s role, according the FRBM panel, should include preparing multi-year fiscal forecasts, recommending changes to fiscal strategy, improving the quality of fiscal data and advising the government if conditions exist to deviate from the fiscal target and advising the government to take corrective action for non-compliance with the Bill. Of course, there is nothing cast in stone. More thought can go into the structure of the Council and the functions that it performs.

The GST Council, for example, is working very well. And the same could be the case with the Fiscal Council too. Creating this institutional mechanism must be a top priority for the government that wrests power in New Delhi.