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The FRBM Act was amended twice, in 2012 and 2015. … Continue reading FRBM : Analysis The requirement of ‘Medium Term Expenditure Framework Statement’ was also added via amendment in FRBMA. The Act was passed on August 26, 2003, therefore it is also called Fiscal Responsibility and Budget Management Act (FRBMA), 2003. Despite all its shortcomings the FRBM act rightly emphasised upon the value of prudent fiscal management, there were amendments in the act earlier and now the FRBM Review committee has made some welcome changes. Required fields are marked *, "Working 24*7 in the police for the last 5 years and been out of touch with the preparation, I took the guidance from your website, especially the ClearIAS prelims test series. For more articles on important concepts for the IAS exam and updates on UPSC current affairs, please visit BYJU’S Free IAS Prep regularly. Search list matched with tags “FRBM ACT” Financing the Fiscal Deficit Why in News India, being one the hardest hit major economy due to Covid-19, faces the challenge of managing its fiscal deficit. Why do we need a new Act? Since then, every Budget includes a Medium Term Fiscal Policy Statement that specifies the annual revenue and fiscal deficit goals over a three-year horizon. The minimum annual reduction target was 0.5% of GDP. Much of the borrowing was utilized for interest payments of previous borrowings, but not for productive-purposes. An annual reduction of – 1% of GDP. Your email address will not be published. total outstanding liabilities as a percentage of GDP. Revenue deficit to be eliminated by the 31st of March 2009. It is considered as one of the major legal steps taken in the direction of fiscal consolidation in India. Critical Analysis of the FRBM Act The act was passed to make the central government and finance minister accountable to parliament for fiscal discipline. The central government agreed to the following fiscal indicators and targets, after the enactment of the FRBMA. The Fiscal Responsibility and Budget Management (FRBM) Bill was introduced in the parliament of India in the year 2000 by Atal Bihari Vajpayee Government for providing legal backing to the fiscal discipline to be institutionalized in the country. What is the significance of FRBM with respect to Indian economy? It is considered as one of the major legal steps taken in the direction of fiscal consolidation in India. The objective of the MTEF is to provide a closer integration between budget and the FRBM Statements. In 2012 and 2015, notable amendments were made, resulting in relaxation of target realisation year. In the year 2016, the NK Singh committee was set up by the government to review the FRBM Act. A minimum annual reduction – 0.3% of GDP. The Act provides room for deviation from the annual fiscal deficit target under certain conditions. Under FRBM, if the escape clause is triggered to allow for a breach of fiscal deficit target, the RBI is then allowed to participate directly in the primary auction of government bonds, thus formalising deficit financing. For details check the details of the budget documents. This article spoke about the FRBM Act, its provisions, and targets. The FRBM Act, enacted in 2003 by Parliament aims to reduce India’s fiscal deficit and improve macroeconomic management. 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. Therefore, fiscal targets had to be postponed temporarily in view of the global crisis. The act also intended to give the required flexibility to the Central Bank for managing inflation in India. The minimum annual reduction target was 0.3% of GDP. 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. You may see headlines like ‘FRBM targets are missed’ or ‘FRBM targets are met’. Revenue Deficit Target – revenue deficit should be reduced to 0.8% of GDP by March 31, 2023. He is the author of many best-seller books like 'Important Judgments that transformed India' and 'Important Acts that transformed India'. Alex Andrews George is a mentor, author, and entrepreneur. to introduce a more equitable and manageable distribution of the country’s debts over the years. 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