Chennai: The Fiscal Responsibility and Budget Management Act was the topic of a heated debate on Saturday at a seminar on fiscal stabilisation and debt sustainability.

The South Indian Chamber of Commerce and Industry (SICCI) conducted the seminar in concert with Public Expenditure Round Table (PERT).

The seminar was attended by bureaucrats, consultants and officials from the Reserve Bank of India (RBI).

General consensus

While the general consensus was that limits on government spending are necessary, not all agreed with its efficacy.

The point of the Act that came under contention was its limiting government spending to three per cent of the gross domestic product (GDP).

"Abundant spending should not be held hostage to arbitrary numbers," said S. Venkitaramanan, RBI former governor.

He added that a corporation would never limit spending to three per cent of its bottom line, as that low a limit would stunt its growth, and the same would apply to the government as well.

The argument that fiscal deficit would lead to unsustainable debt would hold good only if the real rate of growth is lower than the rate of interest paid on borrowings, thanks to various factors including efficient management of monetary policy, the rates of interest in India have been benign over the recent period.

Excess rate of growth

There has, in fact, been excess rate of growth over the rates of interest, which should be good from the point of view of debt sustainability.

He wanted the revenue deficit incurred for non-investment purposes reduced.

"I am in favour of the FRBM stand that the revenue deficit be gradually eliminated," he added. Also discussed were the various impedances to successful implementation of the FRBM Act, such as incomplete bookkeeping, wasteful spending and redundant bureaucracy.

Special study group

B.S. Ragavan, from the Rajaji Centre for Public Affairs, advocated the creation of a special study group to come up with five or six "manageable, digestible" plans for the government, speaking to politicians on their level and omitting alienating jargon.

SICCI plans for a report to be submitted to the government in approximately a month, after the suggestions are analysed.

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