Escape clause
Topic: Government Budget, Fiscal Policy and FRBM · NCERT: Beyond NCERT
Meaning
An escape clause is a legal provision that lets the government depart from its fiscal targets in specified exceptional situations, without breaking the rule. It makes a fiscal rule flexible enough to survive shocks. In India, the 2018 FRBM amendment allows a deviation of up to 0.5% of GDP from the fiscal deficit target for:
- war or national security;
- national calamity;
- collapse of agriculture;
- structural reforms with a fiscal cost;
- real output growth in a quarter that is at least 3 percentage points below its average of the previous four quarters.
When the clause is invoked, the RBI may also subscribe directly to government securities.
Example
When COVID hit, fiscal targets were suspended and the Centre's fiscal deficit reached 9.2% of GDP in 2020-21. This raised the question of direct RBI financing under the escape clause.
Don't confuse with
- Contingency Fund of India (Art. 267): a fixed fund at the President's disposal for urgent, unforeseen spending. The escape clause is a rule-level relaxation of deficit targets, not a pool of money.