Centre Enhances FRBM Limit For Telangana 

Hyderabad: Responding to a plea by Telangana government on increasing FRBM limit, the Centre on Monday agreed to raise the cap by 0.25 percent to 3.5 percent of gross state domestic product (GSDP). The new limit of Fiscal Responsibility and Budget Management (FRBM) is effective from 2016-17 financial year. The latest move by the Centre will enhance elbow room for Telangana on market borrowings. As a result, Telangana government can borrow Rs1,561crore additionally.

Telangana is one of the six states, which have been allowed to borrow more from the market at higher FRBM limit. Considering the surplus revenues and healthy GSDP and borrowings ratio, the Centre has enhanced FRBM limit for Telangana. Otherwise the FRBM cap is three percent for several states. Since Telangana satisfied all the parameters on FRBM, the Centre earlier relaxed the norm by revising it to 3.25 percent for Telangana.

However, anticipation of raising the FRBM cap, Telangana has already factored in Rs21,500 crore market borrowings at 3.5 percent of FRBM. If state’s borrowings are less than or equal to 25 percent of GSDP, then additional FRBM limit of 0.25 percent is allowed. If the total interest payments are less than or equal to 10 percent of revenue receipts then another 0.25 percent relaxation will be given.

However, anticipation of raising the FRBM cap, Telangana has already factored in Rs21,500 crore market borrowings at 3.5 percent of FRBM. If state's borrowings are less than or equal to 25 percent of GSDP, then additional FRBM limit of 0.25 percent is allowed. If the total interest payments are less than or equal to 10 percent of revenue receipts then another 0.25 percent relaxation will be given.

FRBM Panel's Scope Expanded

The scope of a Panel, set up to review the working of FRBM Act, has now been expanded to examine the recommendations of 14th Finance Commission as also of the Expenditure Management Commission (EMC) while giving its report on targeting fiscal deficit. Sources said however that the 5-member committee, under former revenue secretary N K Singh, has not sought extension for submission of its report. The committee has been given time till October 31 to submit its report. The panel has been given additional terms of reference including recommendation of 14 Finance Commission on fiscal deficit target, sources said.

Besides, additional terms of reference for FRBM panel include suggestions from EMC, headed by former RBI Governor Bimal Jalan. Singh also said that the panel has received additional terms of reference. The other members of the panel, which was announced by Finance Minister Arun Jaitley in his Budget speech, include former finance secretary Sumit Bose, Chief Economic Advisor Arvind Subramanian, and NIPFP Director Rathin Roy.

Among other things, the committee is examining the need and feasibility of having a 'fiscal deficit range' as the target in place of the existing fixed numbers (percentage of GDP) as the goal. The committee is reviewing the working of the FRBM Act over last 12 years and suggest the way forward keeping in view the broad objective of fiscal consolidation and prudence and the changes required in the context of the uncertainty and volatility in the global economy. While announcing the intention of the government to set up a committee to examine the FRBM Act, Jaitley in his Budget speech in February had said there is a school of thought which believes that instead of fixed numbers as fiscal deficit targets, it may be better to have a fiscal deficit range as the target, which would give necessary policy space to the government to deal with dynamic situations.

With inputs from PTI