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Fiscal Responsibility & Budget Management (FRBM) Act – A Comprehensive Overview

The Fiscal Responsibility and Budget Management (FRBM) Bill was tabled in India’s parliament in 2000 by the Atal Bihari Vajpayee government to provide the legislative underpinning for the country’s fiscal discipline to be institutionalized. Following that, in 2003, the FRBM Act was enacted. It is a parliamentary act that establishes aims for the Government of India to promote financial discipline, enhance public fund management, strengthen fiscal prudence, and minimize fiscal drag or fiscal deficits.

It is a relevant topic for the UPSC 2021 and falls under the General Studies Paper 3 topic “Indian Economy and challenges relating to planning, mobilization of resources, growth, development, and employment.” Continue reading newspaper editorials and stories about this subject because it might come up in the IAS exam, either directly or indirectly. Candidates should take note of all the points and data they have on this subject properly organized because there is a plethora of knowledge on this subject.

On that note, let’s take a detailed overview of the act which will be useful for preparing Fiscal Responsibility and Budget Management Act UPSC notes.

FRBM Act Amendments in Light of the Union Budget for 2021

  • The fiscal deficit is expected to be 6.8% of GDP in 2021-22.
  • The entire spending projected by the government for 2021-22 is Rs 34,83,236 crore.
  • The spending for Jal Jeevan Mission has increased by 123 percent.
  • In comparison to revised expectations for 2020-21, the budget allocation for women’s welfare has decreased by 26%.
  • Increased allocation for SC welfare by 52.7 percent and ST welfare by 50 percent.
  • The North Eastern region’s allocation has been boosted by 32.7 percent.

FRBM Act Amendments in Light of the Interim Budget 2019-20

On February 1, 2019, the interim budget for the 2019–20 fiscal year was unveiled before the parliament.

According to the most recent information, the following modifications have been made:

  • 3.4% of GDP is projected as the fiscal deficit for 2019–20.
  • The total amount spent in 2019–20 is 13.30% higher than in 2018–19 RE.
  • Increased funding for SC and ST welfare by 35.6% and 28%, respectively.
  • For 2019–20, a disinvestment objective of Rs. 90 billion is planned.

Why was the FRBM Act passed?

The major goal was to eliminate the revenue deficit and reduce the budgetary deficit.

The other important objectives include:

  • Implementation of a transparent fiscal management system within the country
  • Ensuring equal debt distribution over time
  • Ensuring long-term budgetary stability

The act also aimed to provide the Central Bank with the necessary freedom for managing inflation in India.

Features of the FRBM Act

  • The act required that the following be included in the Budget documents each year in the Parliament:
  • Macroeconomic Framework Statement
  • Medium Term Fiscal Policy Statement and
  • Fiscal Policy Strategy Statement
  • The medium-term fiscal policy statement should include projections for four fiscal indicators: revenue deficit as a percentage of GDP, fiscal deficit as a percentage of GDP, tax revenue as a percentage of GDP, and total outstanding liabilities as a percentage of GDP.

Fiscal Indicators and Targets Based on FRBM Act

The most recent FRBM Act target is as follows:

  • By March 31, 2021, the government must keep the fiscal deficit to 3% of the GDP.
  • By the years 2024–2025, the government must keep the central government’s debt to a maximum of 40% of GDP.

Fiscal Responsibility and Budget Management Act Committees

The government established the NK Singh committee in 2016 to evaluate the FRBM Act. The tasks at hand were to evaluate the FRBM Act’s effectiveness and make recommendations for changes to the act’s provisions. According to the committee’s recommendations, the government should aim for a fiscal deficit of 3% of GDP in the years leading up to March 31, 2020, then reduce it to 2.8 % in 2020–21 and 2.5 % by 2023.

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