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Current Affairs, 11-07-2020, FRBM ACT

FRBM Act

  • It was enacted in August 2003.

  • It aims to make the Central government responsible for ensuring inter-generational equity in fiscal management and long-term macro-economic stability.

  • The Act envisages the setting of limits on the Central government’s debt and deficits.

  • It limited the fiscal deficit to 3% of the GDP.

  • To ensure that the States too are financially prudent, the 12th Finance Commission’s recommendations in 2004 linked debt relief to States with their enactment of similar laws.

  • The States have since enacted their own respective Financial Responsibility Legislation, which sets the same 3% of Gross State Domestic Product (GSDP) cap on their annual budget deficits.

  • It also mandates greater transparency in fiscal operations of the Central government and the conduct of fiscal policy in a medium-term framework.

  • The Budget of the Union government includes a Medium Term Fiscal Policy Statement that specifies the annual revenue and fiscal deficit goals over a three-year horizon.

  • The rules for implementing the Act were notified in July 2004. The rules were amended in 2018, and most recently to the setting of a target of 3.1% for March 2023.

The NK Singh committee (set up in 2016) recommended that the government should target a fiscal deficit of 3% of the GDP in years up to March 31, 2020 cut it to 2.8% in 2020-21 and to 2.5% by 2023

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