The FRBM Act aims to maintain fiscal discipline in India by limiting deficits and government borrowing. Learn about its objectives, features, amendments, and significance.
theIAShub | 05 Mar, 2025 | 3693 | 0
The FRBM Act, or Fiscal Responsibility and Budget Management Act, is a key law aimed at ensuring financial stability in India. Enacted in 2003, it sets targets for reducing fiscal deficits and government debt. The act promotes fiscal discipline, enhances transparency, and strengthens financial management.
This article explores what the FRBM Act is, its full form, features, objectives, and recent amendments that impact India’s economy.
The FRBM Act is a legal framework designed to control government borrowing and spending. It mandates fiscal responsibility by setting targets for reducing fiscal and revenue deficits. The act ensures that governments do not overspend beyond sustainable limits, preventing excessive debt accumulation.
The need for the FRBM Act arose from rising fiscal deficits in the 1990s, which threatened India’s economic stability. To address this, the government introduced the act in 2003, requiring gradual deficit reduction while promoting economic growth.
The full form of FRBM Act is Fiscal Responsibility and Budget Management Act. It highlights its core purpose of maintaining financial responsibility in government operations and ensuring a balanced budget.
The features of FRBM Act focus on fiscal discipline, transparency, and accountability. Key aspects include:
The act mandates a phased reduction in the fiscal deficit, limiting the government’s total borrowing. Initially, it set a target of reducing the fiscal deficit to 3% of GDP.
The government must eliminate the revenue deficit by ensuring that borrowing is used only for capital expenditure and not for routine expenses.
The act requires regular financial reporting, including annual and mid-year reviews, to ensure transparency in public finance.
It sets limits on total government liabilities, ensuring that borrowing remains within sustainable limits.
During emergencies like economic recessions, natural disasters, or national security threats, the government can temporarily exceed fiscal deficit limits.
The FRBM Act objectives aim to improve financial management and economic stability. Major objectives include:
By reducing deficits and controlling borrowing, the act prevents economic instability and unsustainable debt accumulation.
The act ensures that government funds are used efficiently, prioritizing long-term investments over short-term consumption.
Regular reporting and accountability mechanisms promote transparency in financial management, ensuring responsible governance.
By maintaining financial discipline, the act creates a stable economic environment conducive to long-term growth.
The FRBM Act recent amendment brought changes to fiscal targets and borrowing guidelines. The most significant amendment came in 2018, based on recommendations from the N.K. Singh Committee.
Key changes in the amendment include:
The amendment set a new target of 3% fiscal deficit by 2020-21, with flexibility based on economic conditions.
Instead of just fiscal deficit targets, the amendment introduced a target of 40% debt-to-GDP ratio for the central government by 2024-25.
The government can deviate from deficit targets by 0.5% of GDP in specific conditions like national security threats, economic slowdowns, or natural disasters.
The amendment removed the strict revenue deficit targets, allowing more flexibility in fiscal management.
The FRBM Act has significantly influenced India’s fiscal policy. It has led to:
The FRBM Act plays a crucial role in ensuring fiscal discipline in India. By setting targets for deficit reduction and debt control, it promotes financial stability and long-term economic growth. The recent amendment introduced more flexibility, allowing the government to manage economic challenges effectively. Understanding the features of FRBM Act, its objectives, and amendments is essential for grasping India’s financial policy framework. The act remains a cornerstone of responsible governance, balancing economic growth with financial prudence.
The full form of FRBM Act is Fiscal Responsibility and Budget Management Act. It emphasizes responsible fiscal management by the government to maintain economic stability.
The FRBM Act includes fiscal deficit reduction targets, revenue deficit control, transparency measures, a debt management framework, and an escape clause allowing deviations during economic crises. These features ensure financial discipline and sustainable economic policies.
The main objectives of the FRBM Act are to ensure fiscal stability, improve public expenditure management, enhance transparency, and support long-term economic growth by controlling government deficits and debt.
The most recent amendment, based on the N.K. Singh Committee’s recommendations in 2018, introduced a 40% debt-to-GDP target, revised fiscal deficit limits, and allowed a 0.5% deviation in deficit targets during economic challenges.
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