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by the Government after formal consultations and advice of the Fiscal Council. It is important to keep reading newspaper articles and editorials on this subject as it can be asked directly or indirectly in the IAS exam. The Committee proposed a draft Debt Management and Fiscal Responsibility Bill, 2017 to replace the Fiscal Responsibility and Budget Management Act, 2003 (FRBM Act). Fiscal deficit is when the government’s expenditure outgrows its revenues. In 2018, the FRBM Act was further amended. The FRBM Act is a fiscal sector legislation enacted by the government of India in 2003, aiming to ensure fiscal discipline for the centre by setting targets including reduction of fiscal deficits and elimination of revenue deficit. The FRBM Act 2003 in its amended form was passed by the government to bring fiscal discipline and to implement a prudent fiscal policy. The targets were breached time and again. The government believed the targets were too rigid. Read about NK Singh’s Fiscal Deficit Committee in the linked article. (Understand what. The recommendations of the committee read that the government must target a fiscal deficit of 3 percent of the GDP in years up to March 31, 2020, subsequently cut it to 2.8 percent in 2020-21 and 2.5 percent by 2023. Indian Economy was weak as it had high Fiscal Deficit, high Revenue Deficit, and high Debt-to-GDP ratio. 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, improve macroeconomic management and the overall management of the public funds by moving towards a balanced budget. Before we start the discussion of FRBM Act, you need to understand following terms: Fiscal deficit of 3.8% estimated in Revised Estimates (RE) 2019-20 and 3.5% for Budget Estimates (BE) 2020-21. The objective of the Act is to ensure inter-generational equity in fiscal management, long run macroeconomic stability, better coordination between fiscal and monetary policy, and transparency in fiscal operation of the Government. Alex Andrews George is a mentor, author, and entrepreneur. The FRBM Act was totally undemocratic in its approach as it denied freedom to future governments in respect of fiscal management. FRBMA was brought into effect from July 5, 2004. Background After the presentation of the Fiscal Responsibility and Budget Management (FRBM) Act in 2003 and the related FRBM Rules in 2004, the target fiscal deficit to GDP ratio of 3% for the Union government was achieved only once, in 2007-08, when it was 2.5%. The minimum annual reduction target was 0.3% of GDP. In May 2016, the government set up a committee under NK Singh to review the FRBM Act. For details check the details of the budget documents. This resulted in interest payments becoming the largest expenditure item of the government. The rule specifies reduction of fiscal deficit to 3% of the GDP by 2008-09 with annual reduction target of 0.3% of GDP per year by the Central government. Your email address will not be published. Escape clause refers to the situation under which the central government can flexibly follow fiscal deficit target during special circumstances. The FRBM Act seeks to achieve long-term macroeconomic stability, while generating budget surpluses, prudential debt management, limiting borrowings to cut down deficits and debt, greater transparency, removal of fiscal impediments and providing a medium-term framework for budgetary implementation. Parliamentarians of India too felt that there should be control on the government of India not to resort to a high level of borrowing to fund its expenditure. The clause allows the govt to relax the fiscal deficit target for up to 50 basis points or 0.5 per cent. The Fiscal Responsibility and Budget Management Bill (FRBM Bill) was introduced in India by the then Finance Minister of India, Mr.Yashwant Sinha in December 2000. What is the full form of FRBM? The FRBM Act, enacted in 2003 by Parliament aims to reduce India’s fiscal deficit and improve macroeconomic management. In 2019-20, total expenditure rises by 13.30% over 2018-19 RE. Singh) submitted its report in January 2017. with a clear commitment to return to the original fiscal target in the coming fiscal year. efficient management of expenditure, revenue and debt. You may see headlines like ‘FRBM targets are missed’ or ‘FRBM targets are met’. Revenue Deficit Target – revenue deficit should be completely eliminated by March 31, 2018. Required fields are marked *, Fiscal deficit pegged at 3.4% of GDP for 2019-20. What is FRBM Act 2003? Revenue Deficit Target – revenue deficit should be completely eliminated by March 31, 2015. Note: The Act exempts the government from following the FRBM guidelines in case of war or calamity. In Budget 2017, Finance Minister Arun Jaitley deferred the fiscal deficit target of 3% of the GDP and chose a target of 3.2%, citing the NK Singh committee report. 3. This video is highly rated by UPSC students and has been viewed 1 times. As seen in the above analysis, different governments have failed to achieve the FRBM targets set to be achieved in 2008 even by 2020. The committee will also propose alterations for the time ahead. After much discussions, a watered-down version of the bill was passed in 2003 to become the FRBM Act. But the benefit from high expenditure and debt today goes to the present generation. Fiscal Deficit Target – fiscal deficit should be reduced to 3% of GDP by March 31, 2015. Finance Minister deferred the fiscal deficit target of 3.2% due to several factors such as low GST collections, spike in oil prices and pressure to spend more. frbm act - Budget 2018-19 has proposed amending the FRBM Act again, which will shift the target of 3% fiscal deficit-GDP ratio to end-March 2021.The FRBM Act is a fiscal sector legislation enacted by the government of India in 2003. The latest provisions of the FRBM act requires the government to limit the fiscal deficit to 3% of the GDP by March 31, 2021, and the debt of the central government to 40% of the GDP by 2024-25, among others. No. The global financial crisis (2007-08) led the government to infuse resources in the economy as the fiscal stimulus in 2008. Though the Act aims to achieve deficit reductions prima facie, an important objective is to achieve inter-generational equity in fiscal management. FRBM became an Act in 2003 which provides a legal-institutional framework for fiscal consolidation. - Poonam Dalal, ClearIAS Online Student. Fiscal Responsibility and Budget Management Act, 2003 sets forth a three-year rolling target for the expenditure indicators with a specification of underlying assumptions and risks involved. Your email address will not be published. Your email address will not be published. Yes, I want ClearIAS to help me score high! Why do we need a new Act? The Fiscal Responsibility and Budget Management (FRBM) Act was enacted in 2003 which set targets for the government to reduce fiscal deficits. It is considered as one of the major legal steps taken in the direction of fiscal consolidation in India. The minimum annual reduction target was 0.5% of GDP. 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