Introduction

  1. The FRBM Act was enacted in 2003 to ensure fiscal discipline and long-term financial stability in India.
  2. It aims to reduce the fiscal deficit, control public debt, and promote transparency in fiscal operations.
  3. Applies to both the Central and State Governments.

Objectives of the FRBM Act

  1. Ensure macroeconomic stability by reducing fiscal deficits and public debt.
  2. Promote fiscal discipline in government expenditure.
  3. Improve transparency in fiscal operations by mandating regular reporting.
  4. Encourage efficient allocation of resources to productive sectors.
  5. Boost investor confidence through a predictable and stable fiscal policy.

Key Provisions of the FRBM Act

  1. The fiscal deficit should not exceed a prescribed limit of 3% of GDP.
  2. Revenue deficit should be reduced to 0% over time.
  3. The government is required to present a Medium-Term Fiscal Policy (MTFP) annually.
  4. Introduction of a Fiscal Responsibility Statement in the Union Budget.
  5. Periodic review by the Comptroller and Auditor General (CAG).

Challenges in Implementing the FRBM Act

  1. Global economic fluctuations: Events like the 2008 financial crisis and the COVID-19 pandemic disrupted fiscal targets.
  2. State-level compliance: Many states find it challenging to adhere to fiscal deficit limits.
  3. High government spending on subsidies and welfare programs increases fiscal burden.
  4. Lack of enforcement mechanisms for non-compliance.
  5. Delays in implementing necessary reforms in taxation and expenditure management.

Amendments and Relaxations

  1. The FRBM Act has been amended several times to accommodate economic needs and crises.
  2. In 2018, the N.K. Singh Committee recommended a new framework with a debt-to-GDP ratio target of 60%.
  3. Temporary relaxations were allowed during the COVID-19 pandemic to enable higher borrowing.

Impact of the FRBM Act

  1. Improved fiscal discipline and accountability.
  2. Reduced fiscal deficit levels, particularly during its initial years.
  3. Enhanced transparency in budgetary processes.
  4. Encouraged states to adopt similar fiscal responsibility laws.
  5. Boosted investor confidence in the Indian economy.

Conclusion

  1. The FRBM Act is a crucial step toward ensuring fiscal stability in India.
  2. Its effective implementation requires a balance between fiscal discipline and developmental needs.
  3. Regular updates and flexibility in the framework are essential to address economic challenges.

Category

Questions

  1. What does FRBM stand for in the context of public finance?
  2. When was the FRBM Act enacted in India?
  3. What is the main objective of the FRBM Act?
  4. Which of the following is a key feature of the FRBM Act?
  5. What was the fiscal deficit target set by the FRBM Act for India?
  6. What is the revenue deficit target under the FRBM Act?
  7. Which committee recommended the enactment of the FRBM Act?
  8. What does the FRBM Act aim to control?
  9. What is the role of the Medium-Term Fiscal Policy Statement in the FRBM Act?
  10. Which economic crisis led to the temporary suspension of the FRBM Act?
  11. What is the primary challenge in implementing the FRBM Act?
  12. Under the FRBM Act, what is meant by "effective revenue deficit"?
  13. Which section of the government is required to submit compliance reports under FRBM?
  14. What does the term "escape clause" in the FRBM Act refer to?
  15. Which key recommendation did the N.K. Singh Committee make regarding the FRBM Act?
  16. Which tool helps monitor compliance with the FRBM Act?
  17. What is the punishment for not adhering to FRBM targets?
  18. Which of the following is a limitation of the FRBM Act?
  19. Why was the FRBM Act amended in 2018?
  20. What is the significance of fiscal deficit targets under the FRBM Act?
  21. Which indicator is NOT a part of the FRBM Act targets?
  22. How does the FRBM Act contribute to macroeconomic stability?
  23. What is one criticism of the FRBM Act?
  24. What is the timeline for the Medium-Term Fiscal Policy Statement?
  25. What is the purpose of the Fiscal Policy Strategy Statement under the FRBM Act?
  26. What is the target for debt-to-GDP ratio as per FRBM recommendations?
  27. Which of the following is an outcome of FRBM non-compliance?
  28. What is the meaning of "budgetary transparency" under the FRBM Act?
  29. Which of the following sectors benefits indirectly from FRBM implementation?
  30. How does the FRBM Act affect fiscal deficit financing?
  31. What was the fiscal deficit glide path introduced for?
  32. Which body reviews FRBM compliance reports?
  33. What does the "escape clause" allow during emergencies?