This Act may be called the Fiscal Responsibility and Budget Management Act , Act 23 of , for “demand for grants” (w.e.f. ). ). Many countries have adopted a combination of fiscal rules FRBM Act, the fiscal deficit was to be reduced steadily to 3% of gross. The Fiscal Responsibility and Budget Management Act, (FRBMA) is an Act of the Parliament of India to institutionalize financial discipline, reduce India’s.
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The frvm of the Act is to ensure inter-generational equity in fiscal management, long run macroeconomic stability, better coordination between fiscal and monetary policy, and transparency in fiscal operation of the Government. Similarly, revenue deficit has to be reduced by 0.
Fiscal Responsibility and Budget Management Act, – Wikipedia
It is the responsibility of the government to adhere to these targets. The Finance Minister has to explain the reasons and suggest corrective actions to be taken, in case of breach.
FRBM Act provides a legal institutional framework for fiscal consolidation. It is now mandatory for the Central government to take measures to reduce fiscal deficit, to eliminate revenue deficit and to generate revenue surplus in the subsequent years.
The Acct binds not only the present government but also the future Government to adhere to the path of fiscal consolidation. The Government can move away from the path of fiscal consolidation only in case of natural calamity, national security and other exceptional grounds 22012 Central Government may specify. Further, the Act prohibits borrowing by the government from the Reserve Bank of India, thereby, making monetary policy independent of fiscal policy.
The Act bans the purchase of primary issues of the Central Government securities by the RBI afterpreventing monetization of government deficit. To impart fiscal discipline at the state level, the Twelfth Finance Commission gave incentives to states through conditional debt restructuring and interest rate relief for introducing Fiscal Responsibility Legislations FRLs.
All the states have implemented their own FRLs. Indian economy faced with the problem of large fiscal deficit and its monetization spilled over to external sector in the late s and early s. The large borrowings of the government led to such a precarious situation that government was unable to pay even for two weeks of imports resulting in economic 20122 of Consequently, Acy reforms were introduced in and fiscal consolidation emerged as one of the key areas of reforms.
Fiscal Responsibility and Budget Management (FRBM) Act
After a good start in the early nineties, the fiscal consolidation faltered after The fiscal deficit started rising after The States have achieved the targets much ahead the prescribed timeline. Government of India was on the path of achieving this objective right in time.
However, due to the global financial crisis, this was suspended and the fiscal consolidation as mandated in the FRBM Act was put on hold in The crisis period called for increase in expenditure by the government to boost demand in the economy. As a result of fiscal stimulus, the government has moved away from the path of fiscal consolidation. However, it should be noted that strict adherence to the path of fiscal consolidation during pre crisis period created enough fiscal space for pursuing counter cyclical fiscal policy.
Effective Revenue Deficit is the difference between revenue deficit and grants for creation of capital assets.
This will help in reducing consumptive component of revenue deficit and create space for increased capital spending.
Effective revenue deficit has now become a new fiscal parameter. Further, the Central Government may entrust the Comptroller drbm Auditor-General of India to review periodically as required, the compliance of the provisions of FRBM Act and such reviews shall be laid on the table of both Houses of Parliament.
Vide the Finance Actthe target dates for achieving the prescribed rates of effective deficit and fiscal deficit were further extended.
Fiscal Responsibility and Budget Management Act, 2003
The effective revenue 20122 which had to be eliminated by March will now need to be eliminated only after 3 years i. Further, FFC has provided a year-to-year flexibility for additional fiscal deficit to States.
FFC, taking into account the development needs and the current macro- economic requirement, provided additional headroom to a maximum of 0.
However, the flexibility in availing the additional fiscal deficit will be available to State if there is no revenue deficit in the year in which borrowing limits are to be fixed and immediately preceding year. If a State is not able to fully utilise its sanctioned fiscal deficit of 3 per cent of GSDP in any particular year during the to of FFC award period, it will have the option of availing this un-utilised fiscal deficit amount 2102 in rupees only in the following year but within FFC award period.
The scheme aims to reduce interest burden, reduce the cost of power, reduce power losses in Distribution sector, and improve operational efficiency of DISCOMs. Government of Crbm will not include the debt taken over by the States as per the above scheme in the calculation of fiscal deficit of respective States in the financial years and In the Union Budget it was proposed to constitute a Committee to review the implementation of the FRBM Act and give its recommendations on the way forward.
This was in view of the new school of thought which believes that instead of fixed numbers as fiscal deficit targets, it may be better to have a fiscal deficit range as the target, which would give necessary policy space to the Government to deal with dynamic situations.
Fiscal Responsibility and Budget Management (FRBM) Act – Arthapedia
There is also a suggestion that fiscal expansion or contraction should be aligned with credit contraction or expansion respectively, in the economy. While remaining committed to fiscal prudence and consolidation, Budget stated that a time has come to review the working of the Ach Act, especially in the context of the uncertainty and 20122 which have become the new norms of global economy.
The Committee consisted of Dr. The Committee had wide acg Terms of Reference ToR to comprehensively review the existing FRBM Act in the light of contemporary changes, past outcomes, global economic developments, best international practices and to recommend the future fiscal framework and roadmap for the country.
These primarily related to strengthening the institutional framework on fiscal matters as well as certain issues connected with new capital expenditures in the budget.