Critically evaluate the shift from deficit-based to debt-based fiscal anchors in India's FRBM framework.

The FRBM Act, 2003 tied fiscal policy to yearly deficit ceilings. The N.K. Singh Committee (2017) proposed making debt-to-GDP the primary anchor, with the fiscal deficit as the operational target. It set a ceiling of 60% for general government debt: 40% for the Centre and 20% for the states [1]. The Centre now aims to bring its debt to about 50% of GDP by March 2031 [2]. The shift is sound in principle, but whether it works depends on how it is carried out.

Merits of the debt anchor

• Stock over flow: debt is the total liability built up over the years. The deficit shows only one year's new borrowing. So debt is the truer test of sustainability [1].
• Room to respond to shocks: a medium-term debt path lets the deficit widen in a crisis (e.g., COVID-19) and narrow later. Rigid yearly cuts do not allow this.
• Global benchmark: most countries with fiscal rules target a debt ratio of about 60% [1]. This makes India's rule easy for markets to read.
• Simplicity: Arvind Subramanian's dissent warned that several precise targets are hard to meet together. He favoured one objective: keeping debt on a declining path [1].

Limitations

• Depends on growth: the ratio falls when nominal GDP rises fast. High inflation can make it look better without any real consolidation.
• Hidden liabilities: the CAG found food and fertiliser subsidy dues of about ₹1.2 lakh crore at the end of 2016-17. It also found IRFC/PFC borrowings of ₹3.05 lakh crore outside the Budget [3]. An anchor is only as good as the debt it counts.
• Ignores quality of spending: borrowing for subsidies counts the same as borrowing for capex. By August 2026 the deficit had already used 41.9% of its full-year target, driven mainly by fertiliser subsidies [4].
• Weak enforcement: the Committee proposed an independent Fiscal Council to police the escape clause [1]. It has not been set up.
• Thin cushion: the 2026-27 deficit target is 4.3% of GDP, barely below 4.4% the year before [2].

Overall, the debt anchor is a more mature and flexible rule than rigid deficit ceilings, but it needs transparency and enforcement to work. Three steps would help: set up the Fiscal Council, bring off-budget liabilities into the Budget as the CAG urged [3], and add a rule on spending quality. With these, the 2031 path can deliver debt sustainability in the spirit of Article 292, which lets Parliament limit Union borrowing.