Fiscal Responsibility and Budget Management Act (FRBM Act) was introduced in Parliament as the FRBM Bill in December 2000. It seeks to foster fiscal discipline on the Central Government and achieving a balanced budget with effective revenue management. The Act was passed on August 26, 2003, therefore it is also called Fiscal Responsibility and Budget Management Act (FRBMA), 2003. FRBMA was brought into effect from July 5, 2004.
Before we start the discussion of FRBM Act, you need to understand following terms:
The objective of FRBM Act was to inculcate the habit of fiscal discipline in the governance structure of the country. It sets targets and suggests means of reducing fiscal and revenue deficits.
The targets that were set in original version of act were:
The Central government shall lay in each financial year before both houses of Parliament the following statements of fiscal policy along with the annual financial statement and demands for grants:
Section 4 of the FRBM Act, 2003 states that “due to ground or grounds of national security or national calamity or such other exceptional grounds as the Central Government may specify”24, the set targets for revenue and fiscal deficit can be exceeded
More than 15 years has passed since FRBM Act was first introduced. But still the government is nowhere near the targets set under the act. The subsequent governments at Centre have amended the act to achieve fiscal prudence. Here are the amendments that have been done in the act so far:
The government formed the committee to review the FRBM Act, 2003 to suggest changes in the act. The committee was headed by Mr. N K Singh (politician, economist and former Indian Administrative Service officer). Recommendations of the committee were:
Read Chapter on Public Finance in India from Indian Economy by Ramesh Singh
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