FRBM act

Subject: Economy

Context:

The consolidated deficit of the Union and States could be as high as 12% of GDP and the overall debt could go up to 85%.

Concept:

• The Fiscal Responsibility and Budget Management (FRBM) Act, 2003, intends to bring transparency and accountability in the conduct of the fiscal and monetary actions of the government.
• The central government agreed to the following fiscal indicators and targets, subsequent to the enactment of the FRBMA
• Revenue deficit to be eliminated by the 31st of March 2009. A minimum annual reduction of 0.5% of GDP.
• Fiscal Deficit to be brought down to at least 3% of GDP by 31st of March 2008. A minimum annual reduction – 0.3% of GDP.
• The FRBM Act made it mandatory for the government to place the following along with the Union Budget documents in Parliament annually:
  • Medium Term Fiscal Policy Statement
  • Macroeconomic Framework Statement
  • Fiscal Policy Strategy Statement
• The FRBM Act proposed that revenue deficit, fiscal deficit, tax revenue and the total outstanding liabilities be projected as a percentage of gross domestic product (GDP) in the medium-term fiscal policy statement.
• Several years have passed since the FRBM Act was enacted, but the Government of India has not been able to achieve targets set under it. The Act has been amended several times.
• In 2013, the government introduced a change and introduced the concept of effective revenue deficit.
• This implies that effective revenue deficit would be equal to revenue deficit minus grants to states for the creation of capital assets.
• In 2016, a committee under N K Singh was set up to suggest changes to the Act.