Context: The economic situation after the COVID has prompted calls for the complete reformation of the Fiscal Responsibility and Budget Management Act (FRBM).
Calculating warranted nominal GDP growth rate:
Issues with the FRBM: The arbitrary setting of targets unrelated to the actual requirements of debt sustainability and ignoring the prevailing state of the economy makes fiscal policy pro-cyclical and inherently destabilizing.
Suggestions for Post-Covid fiscal framework for India:
Way forward: The above 5-year series of WD, consistent with a gradually declining debt-to-GDP, is a simple, non-discretionary deficit rule that is also automatically stabilizing.