The NK Singh Committee recommended shifting India's fiscal anchor from deficit targeting to debt sustainability. In light of India's debt-to-GDP ratio remaining above 54%, critically evaluate whether India needs a new fiscal framework beyond the FRBM Act.

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Introduction The N.K. Singh Committee (2017) recommended a shift from fiscal deficit targeting to a debt-based anchor, arguing that debt sustainability better captures long-term fiscal health. With India’s debt-to-GDP ratio above 54% (Centre) and ~80% (general government), the adequacy of the FRBM framework is under scrutiny.

Limitations of the Existing FRBM Framework

Overemphasis on annual fiscal deficit targets, encouraging short-term adjustments
Scope for creative accounting (off-budget borrowings, EBRs) to meet targets
Weak link between deficit levels and long-term debt trajectory
Frequent deviations and resets, undermining credibility

Rationale for a Debt-based Fiscal Anchor

Focuses on sustainability of public finances rather than yearly numbers
Aligns with macro condition of growth–interest rate differential (g > r)
Provides flexibility for counter-cyclical fiscal policy
Encourages better management of contingent liabilities and guarantees

Challenges in Adopting a New Framework

High and sticky committed expenditure limits pace of debt reduction
Need for strong Centre–State coordination, as states contribute significantly to overall debt
Risk of weak enforcement without institutional reforms
Data and transparency issues in measuring true public liabilities

Reform Options / Way Forward

Adopt a clear debt anchor (e.g., 60% of GDP for general government) with a defined glide path
Retain fiscal deficit as an operational target, aligned with the debt goal
Establish an independent Fiscal Council for monitoring compliance
Include off-budget liabilities and guarantees in fiscal reporting
Strengthen medium-term fiscal frameworks and transparency norms

Conclusion India requires a recalibrated fiscal framework beyond FRBM, anchored in debt sustainability but supported by transparent rules and credible institutions, to ensure long-term fiscal stability without compromising growth.

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