It is, however, heartening to note in this regard that a number of States have been making serious endeavours to carry forward the fiscal reform process and have either enacted the Fiscal Responsibility Act or are in the process of doing so, particularly after the recent publication of the report of the State Finance Secretaries’ Group on Model Fiscal Responsibility Legislation at the State level.
In a major shift in approach, the 12th Finance Commission has linked the enactment of the Fiscal Responsibility Legislation as a precondition for debt relief. This has assumed significance at the macro level as large deficits at the State level can cause distortions to the overall fiscal discipline in the country.