Debt anchor
Topic: Government Budget, Fiscal Policy and FRBM · NCERT: Beyond NCERT
Meaning
A debt anchor is a fiscal rule that makes a medium-term debt-to-GDP target the main goal of fiscal policy. Annual deficit targets become secondary. The government can run slightly higher or lower deficits in a given year, provided debt moves steadily towards the target. The idea came from the N.K. Singh FRBM Review Committee (report January 2017). It said debt, not just the deficit, should be the anchor.
Example
The 2018 FRBM amendment set a general government debt target of 60% of GDP (Centre 40%, states 20%), with a fiscal deficit of 3% as the operational target. From 2026-27, the Centre's main rule became reaching debt of 50 ± 1% of GDP by 31 March 2031, replacing a fixed annual deficit target.
Don't confuse with
- Fiscal deficit target: a limit on one year's borrowing, such as the FRBM 2003 target of 3% of GDP. A debt anchor targets the accumulated stock of debt over several years.