The 2003 Act provides enormous assistance in maintaining fiscal discipline by reducing the fiscal deficit, achieving fiscal stability, and so much more.
When was the FRBM Bill introduced?
The FRBM Bill was first introduced in 2000 by then finance minister Yashwant Sinha. It was subsequently adopted by the Union Cabinet in 2003 and thus, came into effect as from July 5, 2004.
Important Features of the FRBM Act
It obliges the government to lay before Parliament specific financial documents along with the Union Budget which includes:
- Medium Term Fiscal Policy Statement
- Macroeconomic Framework Statement
- Fiscal Policy Strategy Statement
It also includes projections on fiscal deficit, revenue deficit and tax revenue and liabilities as a percentage of GDP.
FRBM Act Exemption
The Act allows to deviate from the fiscal deficit and revenue targets, subject to special cases like:
- National Security Threats
- Natural Disasters
Challenges and amendments
Although it has been in existence for long, the government still has not been able to meet the FRBM targets as laid down by the Government of India. There have been many amendments to the original law since then.
A Break in Fiscal Targets
The fiscal targets were temporarily suspended due to the economic impact of the COVID-19 pandemic, leading to increased government expenditure and hollowed-out revenues. To address this, a new fiscal consolidation plan was introduced in the 2021-22 budget, aiming to reduce the fiscal deficit to below 4.5% by 2025-26.
Important Objectives of the FRBM Act
Transparency: Promotes the inclusion of realistic and accountable fiscal conditions, ensuring clarity in government financial management.
Debt Smoothing: Refers to the gradual and equitable distribution of debt over time, reducing financial strain.
Flexibility to RBI: Provides the Reserve Bank of India the flexibility to manage inflation effectively within the framework of fiscal policy.
