The Fiscal Responsibility and Budget Management Act, 2003 (FRBMA) is an Act of the Parliament of India to institutionalize financial discipline, reduce India’s fiscal deficit, and improve macroeconomic management and the overall management of the public funds by moving towards a balanced budget.
Objectives of Fiscal Responsibility and Budget Management Act
- Reduction of fiscal deficit and revenue deficit;
- To achieve inter-generational equity in fiscal management by reducing the debt burden of the future generation;
- Achieving long-term macroeconomic stability;
- Better coordination between fiscal and monetary policy;
- Transparency in fiscal operations of the Government.
Major Provisions of the FRBM Act 2003
The FRBM rule set a target reduction of fiscal deficit to 3% of the GDP by 2008-09.
The revenue deficit has to be reduced by 0.5% of the GDP per year with complete elimination by 2008-09.
Reduction of Public Debt
Measures to reduce the fiscal deficit and revenue deficit so as to eliminate revenue deficit by 2008-09.
The government shall end its borrowing from the RBI except for temporary advances.
The revenue deficit and fiscal deficit may exceed the targets specified in the rules only on grounds of national security, calamity, and other exceptional grounds to be specified by the Central government.
Amendments to FRBM Act:
Fiscal Responsibility and Budget Management Act, 2003 was amended in 2012 that mandated the Central Government to lay before the Houses of Parliament, Macro-Economic Framework Statement, Medium-Term Fiscal Policy Statement and Fiscal Policy Strategy Statement along with the Annual Financial Statement and Demands for Grants.
Fiscal Responsibility and Budget Management Committee
NK Singh committee, which was set up in 2016 to review the FRBM Act, recommended that the government must target a fiscal deficit of 3% of the GDP in the years up to March 31, 2020, and subsequently cut it to 2.8% in 2020-21 and to 2.5% by 2023.
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