It was mandated by the act that the following must be placed along with the Budget documents annually in the Parliament: It was proposed that the four fiscal indicators i.e, revenue deficit as a percentage of. The Fiscal Responsibility and Budget Management (FRBM) Act was enacted in 2003 which set targets for the government to reduce fiscal deficits. For details check the details of the budget documents. Therefore, fiscal targets had to be postponed temporarily in view of the global crisis. In India, the borrowing levels were very high in the 1990s and 2000s. The minimum annual reduction target was 0.3% of GDP. 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. The FRBM Review Committee was formed in 2016 under the chairmanship of N.K.Singh with a mandate to review the Fiscal Responsibility & Budget Management (FRBM) Act. It is a relevant topic for the UPSC 2021 and falls under the topic “Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment” in General Studies Paper 3. The FRBM Review Committee headed by former Revenue Secretary, NK Singh was appointed by the government to review the implementation of FRBM. The central government agreed to the following fiscal indicators and targets, after the enactment of the FRBMA. In May 2016, the government set up a committee under NK Singh to review the FRBM Act. Many economists then warned the government that this condition is not sustainable. The FRBM Act was passed by the Parliament of India in 2003 to reduce Fiscal Deficit. Note: The Act exempts the government from following the FRBM guidelines in case of war or calamity. It … Controlling fiscal deficit, thus meant, controlling the government’s wasteful expenditure. - Poonam Dalal, ClearIAS Online Student. As per the latest data, the following changes have been incorporated : Read the summary of Union Budget 2020 for an upcoming exam in the linked article. What is the full form of FRBM? High fiscal deficit was the one major macroeconomic problem faced … Revenue Deficit Target – revenue deficit should be completely eliminated by March 31, 2018. A minimum annual reduction – 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. 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. Fiscal Deficit to be brought down to at least 3% of GDP by 31st of March 2008. Fiscal Responsibility and Budget Management (FRBM) became an Act in 2003. In 2020, Finance Minister, Nirmala Sitharaman used the escape clause provided under the FRBM Act to allow the relaxation of the target. 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 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. But the benefit from high expenditure and debt today goes to the present generation. What exactly is FRBM? What is FRBM Act? This article spoke about the FRBM Act, its provisions, and targets. efficient management of expenditure, revenue and debt. This resulted in interest payments becoming the largest expenditure item of the government. 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. In 2019-20, total expenditure rises by 13.30% over 2018-19 RE. In May 2016, the government set up a committee under NK Singh to review the FRBM Act. Fiscal deficit of 3.8% estimated in Revised Estimates (RE) 2019-20 and 3.5% for Budget Estimates (BE) 2020-21. This terminology was innovated by the NK Singh Committee on FRBM. That is, if credit growth falls, the fiscal deficit may need to rise and if credit rises, the fiscal deficit ought to fall — to ensure adequate money supply to the economy. Subsequently, the FRBM Act was passed in the year 2003. Articles similar to FRBM Act are linked in the table below: Your email address will not be published. After much discussions, a watered-down version of the bill was passed in 2003 to become the FRBM Act. The FRBM act also provided for certain documents to be tabled in the Parliament of India, along with Budget, annually with regards to the country’s fiscal policy. The Committee suggested using debt as the primary target for fiscal policy. 35.6% increase in allocation for welfare of SCs, 28% for STs. Revenue deficit to be eliminated by the 31st of March 2009. Total Debt to be reduced to 9% of the GDP (a target increased from the original 6% requirement in 2004–05). The Committee proposed a draft Debt Management and Fiscal Responsibility Bill, 2017 to replace the Fiscal Responsibility and Budget Management Act, 2003 (FRBM Act). About the Fiscal Responsibility and Budget Management (FRBM) Act: The Fiscal Responsibility and Budget Management Act, 2003 (FRBMA) is an Act to institutionalize financial discipline and reduce India’s fiscal deficit. The primary objective was the elimination of revenue deficit and bringing down the fiscal deficit. It is a legal step to ensure fiscal discipline and fiscal consolidation in India. You may see headlines like ‘FRBM targets are missed’ or ‘FRBM targets are met’. The central government agreed to the following fiscal indicators and targets, subsequent to the enactment of the FRBMA 1. Every time when the Union Budget of India is presented, the term FRBM is seen in the news. However, the targets were not met. 3. Read about NK Singh’s Fiscal Deficit Committee in the linked article. These are: The FRBM Act set targets for fiscal deficit and revenue deficit. In the year 2016, the NK Singh committee was set up by the government to review the FRBM Act. to introduce transparent fiscal management systems in the country. The committee will also propose alterations for the time ahead. Follow ClearIAS timetable, study plan, and book-list. The FRBM Act is a law enacted by the Government of India in 2003 to ensure fiscal discipline – by setting targets including reduction of fiscal deficits and elimination of revenue deficit. Your email address will not be published. No. by the Government after formal consultations and advice of the Fiscal Council. The FRBM Act 2003 in its amended form was passed by the government to bring fiscal discipline and to implement a prudent fiscal policy. We need a new … Continue reading FRBM Act A minimum annual reduction of 0.5% of GDP. to introduce a more equitable and manageable distribution of the country’s debts over the years. The FRBM Act was totally undemocratic in its approach as it denied freedom to future governments in respect of fiscal management. The Fiscal Responsibility and Budget Management (FRBM) Act, 2003, intends to bring transparency and accountability in the conduct of the fiscal and monetary actions of the government. The targets were breached time and again. Your email address will not be published. Hence in 2000, they introduced a bill to bring responsibility and discipline in matters of expenditure and debt. However, the Comptroller and Auditor General of India (CAG) pulled up the government for deferring the targets which it said should have been done through amending the Act. 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. FRBM became an Act in 2003 which provides a legal-institutional framework for fiscal consolidation. The clause allows the govt to relax the fiscal deficit target for up to 50 basis points or 0.5 per cent. For more articles on important concepts for the IAS exam and updates on UPSC current affairs, please visit BYJU’S Free IAS Prep regularly. 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. An annual reduction of – 1% of GDP. It is considered as one of the major legal steps taken in the direction of fiscal consolidation in India. Aspirants can complement their reading with the following related articles: The latest information related to the FRBM Act for the 2019-20 Financial year is given below: This is an important topic in the UPSC exam and other government exams like banking, SSC, RRB, etc. Alex is the founder of ClearIAS and one of the expert Civil Service Exam Trainers in India. He is the author of many best-seller books like 'Important Judgments that transformed India' and 'Important Acts that transformed India'. The topic is important for IAS Exam, hence this article will be talking about the FRBM act in detail which will be useful for the civil services exam. Revenue Deficit Target – revenue deficit should be completely eliminated by March 31, 2015. A minimum annual reduction – 0.3% of GDP. The global financial crisis (2007-08) led the government to infuse resources in the economy as the fiscal stimulus in 2008. Achieving FRBM targets thus ensures inter-generation equity by reducing the debt burden of the future generation. Fiscal Deficit Target – fiscal deficit should be reduced to 2.5% of GDP by March 31, 2023. 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. Why do we need a new Act? This ratio was 70% in 2017. The Act provides room for deviation from the annual fiscal deficit target under certain conditions. Specific details were updated in sub-section (2) of Section 4. The government believed the targets were too rigid. FRBM Act – Guidelines, Targets, and Escape Clause. What is the significance of FRBM with respect to Indian economy? The Fiscal Responsibility and Budget Management (FRBM) Act was enacted in 2003 which set targets for the government to reduce fiscal deficits. UPSC: Latest News, IAS, IPS, UPSC Online Preparation, Last updated on August 29, 2020 by Alex Andrews George. Finance Minister revised the fiscal deficit for FY20 to 3.8 per cent and pegged the target for FY21 to 3.5 per cent. In 2012 and 2015, notable amendments were made, resulting in relaxation of target realisation year. Alex Andrews George is a mentor, author, and entrepreneur. Before we start the discussion of FRBM Act, you need to understand following terms: 4… The FRBM rules mandate four fiscal indicators to be projected in the medium-term fiscal policy statement. If there is no fiscal discipline, the government (executive) may spend as it wishes. 2. 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. Indian Economy was weak as it had high Fiscal Deficit, high Revenue Deficit, and high Debt-to-GDP ratio. 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 FRBM Act is a law enacted by the Government of India in 2003 to ensure fiscal discipline – by setting targets including reduction of fiscal deficits and elimination of revenue deficit. 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