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Recently, the Kelkar Committee published a roadmap for fiscal consolidation. The report stresses the need and urgency to address India’s fiscal deficit. A high fiscal deficit – the excess of government expenditure over receipts – can be problematic for many reasons. The fiscal deficit is financed by government borrowing; increased borrowing can crowd out funds available for private investment. High government spending can also lead to a rise in price levels. A full PRS summary of the report can be found here. Recent fiscal trends Last year (2011-12), the central government posted a fiscal deficit of 5.8% (of GDP), significantly higher than the targeted 4.6%. This is in stark contrast to five years ago in 2007-08, when after embarking on a path of fiscal consolidation the government’s fiscal deficit had shrunk to a 30 year low of 2.5%. In 2008-09, a combination of the Sixth Pay Commission, farmers’ debt waiver and a crisis-driven stimulus led to the deficit rising to 6% and it has not returned to those levels since. As of August this year, government accounts reveal a fiscal deficit of Rs 3,37,538 crore which is 65.7% of the targeted deficit with seven months to go in the fiscal year. With growth slowing this year, the committee expects tax receipts to fall short of expectations significantly and expenditure to overshoot budget estimates, leaving the economy on the edge of a “fiscal precipice”.
Figure 1 (source: RBI)
Committee recommendations - expenditure To tackle the deficit on the expenditure side, the committee wants to ease the subsidy burden. Subsidy expenditure, as a percentage of GDP, has crept up in the last two years (see Figure 2) and the committee expects it to reach 2.6% of GDP in 2012-13. In response, the committee calls for an immediate increase in the price of diesel, kerosene and LPG. The committee also recommends phasing out the subsidy on diesel and LPG by 2014-15. Initial reports suggest that the government may not support this phasing out of subsidies.
Figure 2 (source: RBI, Union Budget documents, PRS)
For the fertiliser subsidy, the committee recommends implementing the Department of Fertilisers proposal of a 10% price increase on urea. Last week , the government raised the price of urea by Rs 50 per tonne (a 0.9% increase). Finally, the committee explains the rising food subsidy expenditure as a mismatch between the issue price and the minimum support price and wants this to be addressed. Committee recommendations - receipts Rising subsidies have not been matched by a significant increase in receipts through taxation: gross tax revenue as a percentage of GDP has remained around 10% of GDP (see Figure 3). The committee seeks to improve collections in both direct and indirect taxes via better tax administration. Over the last decade, income from direct taxes – the tax on income – has emerged as the biggest contributor to the Indian exchequer. The committee feels that the pending Direct Tax Code Bill would result in significant losses and should be reviewed. To boost income from indirect taxes – the tax on goods and services – the committee wants the proposed Goods and Service Tax regime to be implemented as soon as possible.
Figure 3 (source: RBI)
Increasing disinvestment, the process of selling government stake in public enterprises, is another proposal to boost receipts. India has failed to meet the disinvestment estimate set out in the Budget in the last two years (Figure 4). The committee believes introducing new channels [1. The committee suggests introducing a ‘call option model’. This is a mechanism allowing the government to offer for sale multiple securities over a period of time till disinvestment targets are achieved. Investors would have the option to purchase securities at the cost of a premium. They also propose introducing ‘exchange traded funds’ which would comprise all listed securities of Central Public Sector Enterprises and would provide investors with the benefits of diversification, low cost access and flexibility.] for disinvestment would ensure that disinvestment receipts would meet this year’s target of Rs 30,000 crore.
Figure 4 (source: Union Budget documents, PRS)
Taken together, these policy changes, the committee believe would significantly improve India’s fiscal health and boost growth. Their final projections for 2012-13, in both a reform and no reform scenario, and the medium term (2013-14 and 2014-15) are presented in the table below: [table id=2 /]
On October 18, it was reported in the news that the central government has been given more time for framing rules under the Citizenship (Amendment) Act, 2019. The President had given assent to this Act in December 2019 and the Act came into force in January 2020. Similarly, about two years have passed since the new labour codes were passed by Parliament, and the final Rules are yet to be published. This raises the question how long the government can take to frame Rules and what is the procedure guiding this. In this blog, we discuss the same.
Under the Constitution, the Legislature has the power to make laws and the Executive is responsible for implementing them. Often, the Legislature enacts a law covering the general principles and policies, and delegates the power to the Executive for specifying certain details for the implementation of a law. For example, the Citizenship Amendment Act provides who will be eligible for citizenship. The certificate of registration or naturalization to a person will be issued, subject to conditions, restrictions, and manner as may be prescribed by the central government through Rules. Delay in framing Rules results in delay in implementing the law, since the necessary details are not available. For example, new labour codes provide a social security scheme for gig economy workers such as Swiggy and Zomato delivery persons and Uber and Ola drivers. These benefits as per these Codes are yet to be rolled out as the Rules are yet to be notified.
Timelines and checks and balances for adherence
Each House of Parliament has a Committee of Members to examine Rules, Regulations, and government orders in detail called the Committee on Subordinate Legislation. Over the years, the recommendations of these Committees have shaped the evolution of the procedure and timelines for framing subordinate legislation. These are reflected in the Manual of Parliamentary Procedures issued by the Ministry of Parliamentary Affairs, which provides detailed guidelines.
Ordinarily, Rules, Regulations, and bye-laws are to be framed within six months from the date on which the concerned Act came into force. Post that, the concerned Ministry is required to seek an extension from the Parliamentary Committees on Subordinate Legislation. The reason for the extension needs to be stated. Such extensions may be granted for a maximum period of three months at a time. For example, in case of Rules under the Citizenship Amendment Act, 2019, at an earlier instance, an extension was granted on account of the onset of the COVID-19 pandemic.
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To ensure monitoring, every Ministry is required to prepare a quarterly report on the status of subordinate legislation not framed and share it with the Ministry of Law and Justice. These reports are not available in the public domain.
Recommendations to address delays
Over the years, the Subordinate Legislation Committees in both Houses have observed multiple instances of non-adherence to the above timelines by various Ministries. To address this, they have made the following key recommendations:
Are all Rules under an Act required to be framed?
Usually, the expressions used in an Act are “The Central Government may, by notification, make rules for carrying out the provisions of this Act.”, or “as may be prescribed”. Hence, it may appear that the laws aim to enable rule-making instead of mandate rule-making. However, certain provisions of an Act cannot be brought into force if the required details have not been prescribed under the Rules. This makes the implementation of the Act consequent to the publication of respective Rules. For example, the Criminal Procedure (Identification) Act, 2022 enables the police and certain other persons to collect identity-related information about certain persons. It provides that the manner of collection of such information may be specified by the central government. Unless the manner is prescribed, such collection cannot take place.
That said, some other rule-making powers may be enabling in nature and subject to discretion by the concerned Ministry. In 2016, Rajya Sabha Committee on Subordinate Legislation examined the status of Rules and Regulations to be framed under the Energy Conservation Act, 2001. It observed that the Ministry of Power had held that two Rules and three Regulations under this Act were not necessary. The Ministry of Law and Justice had opined that those deemed not necessary were enabling provisions meant for unforeseen circumstances. The Rajya Sabha Committee (2016) had recommended that where the Ministry does not feel the need for framing subordinate legislation, the Minister should table a statement in Parliament, stating reasons for such a conclusion.
Some key issues related to subordinate legislation
The Legislature delegates the power to specify details for the implementation of a law to the Executive through powers for framing subordinate legislation. Hence, it is important to ensure these are well-scrutinised so that they are within the limits envisaged in the law.
See here for our recently published analysis of the Criminal Procedure (Identification) Rules, 2022, notified in September 2022. Also, check out PRS analysis of:
