a) Are fiscal risks increasing?

After the enactment of the Fiscal Responsibility and Budget Management (FRBM) Act in 2003 and the related FRBM Rules in 2004, the target fiscal deficit to GDP ratio of 3% for the Union government was achieved only once, in 2007-08, when it was 2.5%. That achievement has yet to be emulated again. The FRBM Act was amended twice, in 2012 and 2015. The revisions in 2015 shifted the date for achieving the 3% target to 2017-18. By this year, the amended revenue deficit target was put at 2% of GDP.

Resetting the framework

Budget 2018-19 has proposed amending the FRBM Act again, which will shift the target of 3% fiscal deficit-GDP ratio to end-March 2021. No target has been set for revenue deficit. The new statutory anchors relate to the general and Central government debt-GDP ratios that are to be reduced to 60% and 40% of GDP, respectively, by 2024-25, based on the recommendations of the report by the FRBM Review Committee. However, only a diluted version of the recommendations has been accepted.

Missing the fiscal responsibility targets year after year and changing the statutory framework time and again bring the credibility of the government’s commitment to fiscal discipline in the spotlight. As per the requirement of the FRBM Act of 2003, and amended in 2015, a medium-term fiscal policy statement has been presented by successive governments in each Budget, setting three-year rolling targets for fiscal, revenue, and effective revenue deficits and outstanding debt of the Central government. A review of these shows that the targets for all the four variables have almost always been missed, often by big margins. Thus, with reference to the new anchor of the Centre’s debt-GDP ratio, the target set in the 2015-16 Budget was 42.8% for 2017-18. In the 2016-17 Budget, it was reset to 46.8%. The revised estimates for 2017-18 show the ratio at 49.1%. Thus, the deviation of the targets from the revised estimate (RE) was 6.3 percentage points of GDP when it was first set; even after being reset the next year, it was 2.3 percentage points. There was only one exception when the fiscal deficit target of 3.5% for 2016-17 (which was set in 2015-16) equalled the corresponding realisation. However in the 2017-18 RE, it has remained stuck at the 3.5% level.

The average rate or margin by which different governments have reduced the fiscal and revenue deficits relative to GDP has been quite low. The average margin of reduction over two periods, namely 2009-10 to 2013-14 and 2014-15 to 2018-19, for fiscal deficit relative to GDP was 0.3 percentage points per year in the first period and 0.2 percentage points per year for the second period. The same margins applied for revenue deficit reduction. For the Centre’s debt-GDP ratio, the average reduction margin was 1.1 percentage points and 0.5 percentage points per year for the two periods, respectively. The current Budget has retained the fiscal deficit at 3.5% of GDP, missing the budgeted target of 3.2% which was itself a deviation from the stipulated target of 3% for 2017-18 in the amended FRBM Act. A slippage margin of 50 basis points implies a delay in reaching the target by two and a half years given the average margin of reduction of 0.2 percentage points per year. In the absence of improvement in the fiscal deficit level in 2017-18, the debt-GDP ratio has increased to 49.1% in 2017-18 from 48.7% in 2016-17 rather than falling, which was the trend until recently.

Diluting recommendations

In the proposed amendment to the FRBM Act, key recommendations of the review committee were not accepted. It had wanted the target at which the fiscal deficit to GDP ratio was to be stabilised set at 2.5%. The committee had derived the 2.5% target by reference to the annual estimate of available investible resources at 10% of GDP consisting of surplus savings of the household sector and sustainable net capital inflows. It assessed that half of it, that is 5%, could be pre-emptively shared equally by the Central and State governments, keeping their fiscal deficits at 2.5% of GDP each, leaving the balance of 5% for public sector and corporate borrowing. The government apparently did not accept this framework and continued with the 3% target. If this was to be the case, we might as well have continued with the present FRBM Act. In fact, it can be shown that were the government to abide by the 3% mandate beyond 2020-21, the debt to GDP ratio would come down to 40% by 2024-25 with a nominal growth assumption of 11.5%. Thus, specifying the fiscal deficit target of 3% would have been enough to achieve the debt target.

Second, the committee had not given up on the desirability of achieving revenue account balance. It had specified a revenue deficit glide path, reaching 0.8% by 2022-23. This too was not accepted. The target of revenue account balance is well recognised in the so-called ‘golden rule’ wherein a country may borrow as long as the entire borrowing is spent on capital spending. This can only be achieved by keeping the revenue deficit to zero. In the Indian context, the revenue deficit with some adjustments reflects government dis-savings. Unless government dis-savings are eliminated, it will be difficult to reverse the trend of a falling savings rate.

Third, the Central government did not accept another recommendation of setting up a fiscal council, which could independently examine the economic case and justification for deviating from the specified targets. Unconstrained fiscal flexibility, both in approach and statutory provisions, adds to a climate of avoidable fiscal risks.

Fourth, in the committee’s recommendations, the debt-GDP levels of 60% and 40% of GDP for the general and Central governments, respectively, were to be achieved by 2022-23. These target dates have been shifted to 2024-25.

Fiscal risks

Fiscal risks may also be higher with the reliance on extra-budgetary resources for financing a number of ambitious government spending programmes. In the Budget for 2018-19, the total outlays for three focus areas, namely, agriculture and rural livelihoods, infrastructure and education, and health and social sectors, amount to 11.6% of GDP as per Annexures 1, 2 and 3 of the Finance Minister’s speech. These are to be funded using budgetary and extra-budgetary resources. Budgetary resources constitute only 16.4% of the total outlay. The balance, 83.6%, is to be raised as an extra-budgetary resource by the public sector enterprises concerned, special purpose vehicles and other similar institutions. Thus, the extra budgetary resources are meant to contribute almost 9.7% of GDP to finance the stipulated outlays as detailed in the annexures to the Minister’s speech. A substantial part of this may only be based on borrowing as the relevant bodies may have limited surpluses. Any dependence on borrowing for these extra-budgetary resources along with the borrowing requirements of the State governments while the saving rate is falling can put considerable pressure on interest rates.

The projected fiscal deficit of 3.3% of GDP for 2018-19 is itself contingent upon revenues rising to the budgeted levels and expenditures being contained at levels indicated in the Budget. There are concerns and doubts on both counts. Another year of slippage can be damaging. We also need to note that interest payments to revenue receipts of the Centre stand at 35.3%. This restricts the space for other development expenditures. Some people ask whether it is at all necessary to have such rules as mandated fiscal deficits or inflation targets. Rules versus discretion is an old issue that has been debated extensively. If the rules are too rigid, they are likely to break down. But a complete abandonment of rules can lead to instability. In fact, the fiscal deficit rule in India has been honoured more in breach than in observance. More than ever, the fiscal deficit needs continued vigilance. We need to stay the course.

  1. b) Murky mining: on SC cancelling mining leases in Goa

The Supreme Court order to halt the murky course that mining has taken in Goa should help restore some balance to the exploitation of iron and manganese ore in the ecologically fragile State. As the court observed this week in the Goa Foundation case, commercial mining activity can be rapacious in the absence of clearly laid down and strictly enforced conditions. This is exactly what has happened in Goa, with the State government displaying shocking disregard for rules and processes while renewing licences for a second time in 2015. It inexplicably chose not to exercise its right to view the licences as fresh leases that require new environmental impact assessments. The Bharatiya Janata Party government in Goa invited a cloud of suspicion by hastily launching the renewal of licences just a day after it unveiled a Grant of Mining Leases Policy on November 4, 2014. Quite extraordinarily, it issued 31 orders on a single day, January 12, 2015, apparently to pre-empt the Centre’s Mines and Minerals (Development and Regulation) Amendment Ordinance that came into force the same day. Now that the Supreme Court has ordered the termination of 88 licences, grant of fresh licences and proper accounting of the losses, mining activity in its entirety should begin on a clean slate. Future decisions should be guided solely by the true cost to the environment and to human health.

Goa has argued that the mining industry is crucial to its economy as it brings in foreign exchange, provides employment and supports a transport industry. Yet, it is also true that the ore mined in the State is low in iron, reducing its value to the domestic steel industry. Given that mining has a severe destructive impact on the ecology, resumption of large-scale activity should await a scientific audit of how sustainable it is. Any more mining should also account for the loss of employment while calculating economic gains. Just last year, public protests over contaminated groundwater and fouled air, as in Sattari taluk, underscored the need for strict environmental controls. It is relevant to point out that the Union Environment Ministry’s Expert Appraisal Committee found in 2013 that many of the past leases had been issued without the approval of the National Board for Wildlife, and miners had extracted ore in excess. The requirement for clearance from the Central Ground Water Board was ignored. Going forward, the Environment Ministry must display zero tolerance to such violations, reversing its indefensible decision of 2015 to lift its own abeyance order issued against unsustainable mining. The Supreme Court’s directions provide Goa with an opportunity: to change course and become a mainstream tourist State. It can regain its position as a top destination for global visitors and broaden employment in services. Tourist charters need to replace its open cast mines and dust bowls.


1) Enactment

Meaning: The process of passing legislation.

Example: “The enactment of equal pay legislation”

Synonyms: Passing, Making law

Antonyms: Repeal

2) Emulated

Meaning: Match or surpass (a person or achievement), typically by imitation.

Example: “Most rulers wished to emulate Alexander the Great”

Synonyms:  Imitate, Copy

3) Amended

Meaning: Make minor changes to (a text, piece of legislation, etc.) in order to make it fairer or more accurate, or to reflect changing circumstances.

Example: “The rule was amended to apply only to non-members”

Synonyms: Revise, Alter

4) Statutory

Meaning: Required, permitted, or enacted by statute.

Example: “Statutory controls over prices”

5) Diluted

Meaning: Make (a liquid) thinner or weaker by adding water or another solvent to it.

Example: “Bleach can be diluted with cold water”

Synonyms: Make weaker, Weaken

Antonyms: Concentrate

6) Spotlight

Meaning: Direct attention to (a problem or situation).

Example: “The protest spotlighted the overcrowding in British prisons”

Synonyms:  Focus attention on, highlight

Antonyms:   Play down

7) Deviation

Meaning: The action of departing from an established course or accepted standard.

Example: “Deviation from a norm”

Synonyms:  Divergence, Digression

8) Slippage

Meaning: The action or process of slipping or subsiding.

Example: “£16 million has been spent on cracks and slippage”

9) Surplus

Meaning: An amount of something left over when requirements have been met; an excess of production or supply.

Example: “Exports of food surpluses”

Synonyms: Excess, Surfeit

Antonyms: Dearth, Shortage, lack

10) Pre-emptively

Meaning: If something is pre-emptive, it is done before other people can act, especially to prevent them from doing something else.

Example:  “The Treasury has decided to raise interest rates as a pre-emptive measure against inflation”

11) Glide

Meaning: Move (something) with a smooth continuous motion.

Example: “Slide your hands firmly across the shoulders then glide them down”

Synonyms: Slide, Move smoothly

Antonyms: Hurtle

12) Golden rule

Meaning: A basic principle which should always be followed to ensure success in general or in a particular activity.


13) Unconstrained

Meaning: Not restricted or limited.

Example: “Unconstrained growth”

14) Ambitious

Meaning: Having or showing a strong desire and determination to succeed.

Example:  “A ruthlessly ambitious woman”

Synonyms: Aspiring, Determined

Antonyms: Unambitious, Lazy

15) Outlays

Meaning: An amount of money spent on something.

Example: “A modest outlay on local advertising”

Synonyms: Expenditure, Expenses

16) Stipulated

Meaning: Demand or specify (a requirement), typically as part of an agreement.

Example: “He stipulated certain conditions before their marriage”

Synonyms: Specify, Set down

17) Annexures

Meaning: A separate part of a legal agreement, report, etc. that gives extra information.

Example: “The Inquiry will result in a public report but it may be necessary to present some material in a confidential annexure”

18) Contingent

Meaning: Subject to chance.

Example: “The contingent nature of the job”

Synonyms: Chance, Accidental

Antonyms: Predictable

19) Concerns

Meaning: Anxiety; Worry.

Example: “Carole gazed at her with concern”

Synonyms: Anxiety, Worry

Antonyms: Serenity, Peace of mind

20) Discretion

Meaning: The quality of behaving or speaking in such a way as to avoid causing offence or revealing confidential information.

Example: “She knew she could rely on his discretion”

Synonyms: Circumspection, Care

Antonyms:   Indiscretion, Rashness

21) Abandonment

Meaning: The action or fact of abandoning or being abandoned.

Example: “She had a feeling of utter abandonment and loneliness”

Synonyms: Desertion, neglect, stranding; More

Antonyms: Adoption

22) Breach

Meaning: An act of breaking or failing to observe a law, agreement, or code of conduct.

Example: “A breach of confidence”

Synonyms: Contravention, Violation

23) Vigilance

Meaning: The action or state of keeping careful watch for possible danger or difficulties.

Example: “Security duties that demand long hours of vigilance”

Synonyms: Watchfulness, Careful observation

Antonyms: Inattentiveness

24) Exploitation

Meaning: The action or fact of treating someone unfairly in order to benefit from their work.

Example: “The exploitation of migrant workers”

Synonyms: Taking advantage, Making use

25) Fragile

Meaning: (Of an object) easily broken or damaged.

Example: “Fragile items such as glass and china”

Synonyms: Breakable, Easily broken

Antonyms: Robust

26) Rapacious

Meaning: Aggressively greedy or grasping.

Example: “Rapacious landlords”

Synonyms: Grasping, Greedy

Antonyms: Generous

27) Disregard

Meaning: Pay no attention to; Ignore.

Example: “The body of evidence is too substantial to disregard”

Synonyms: Ignore, Take no notice of

Antonyms: Heed, Pay attention to

28) Inexplicably

Meaning: In a way that cannot be explained or accounted for.

Example:  “Many crucial documents had inexplicably disappeared”

29) Leases

Meaning: Grant (property) on lease; let.

Example: “She leased the site to a local company”

Synonyms: Rent out, Rent, let

Antonyms: Sell

30) Suspicion

Meaning: A feeling or thought that something is possible, likely, or true.

Example: “She had a sneaking suspicion that he was laughing at her”

Synonyms: Intuition, Feeling

Antonyms: Certainty

31) Hastily

Meaning: With excessive speed or urgency; hurriedly.

Example: “Maybe I acted too hastily”

Synonyms:  Quickly, Hurriedly

Antonyms: Slowly, Carefully, Deliberately

32) Solely

Meaning: Not involving anyone or anything else; only.

Example: “He is solely responsible for any debts the company may incur”

Synonyms: Only, Simply, just

33) Await

Meaning: Wait for (an event).

Example: “We await the proposals with impatience”

Synonyms: Wait for; Expect

34) Contaminated

Meaning: Make (something) impure by exposure to or addition of a poisonous or polluting substance.

Example: “The site was found to be contaminated by radioactivity”

Synonyms: Pollute, Adulterate

Antonyms: Purify

35) Fouled

Meaning: Make foul or dirty; Pollute.

Example: “Factories which fouled the atmosphere”

Synonyms: Dirty, Soil

36) Appraisal

Meaning: An act of assessing something or someone.

Example: “She carried out a thorough appraisal”

Synonyms: Assessment, Evaluation

37) Abeyance

Meaning: A state of temporary disuse or suspension.

Example: “Matters were held in abeyance pending further enquiries”

Synonyms:  Suspension, A state of suspension

Antonyms: In hand, under way

38) Broaden

Meaning: Expand to encompass more people or things.

Example: “Her interests broadened as she grew up”

Synonyms: Expand, Enlarge

Antonyms: Diminish

39) Charters

Meaning: A written grant by the sovereign or legislative power of a country, by which a body such as a borough, company, or university is created or its rights and privileges defined.

Example: “The town received a charter from the Emperor”

Synonyms: Authority, Authorization

40) Dust bowls

Meaning: An area of land where vegetation has been lost and soil reduced to dust and eroded, especially as a consequence of drought or unsuitable farming practice.

Check Yesterday’s THE HINDU Editorial to learn more words and to ace the English section in the forthcoming exams.



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