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Entire Document
HIMACHAL PRADESH NATIONAL LAW UNIVERSITY, SHIMLA
2020-2021 Research Report On Review of F.R.B.M. Act
Submitted by: Submitted to: Naman Mishra Dr. Deepika Gautam ROLL No.-1020181936 (Asst. Professor of Management)
(B.A.LL.B- IV SEMESTER)
ACKNOWLEDGEMENT
It is not conceivable to set up an undertaking report without the help and consolation of other individuals. I am utilizing
this chance to express my appreciation to everybody who upheld me over the span of this assignment. I am grateful for
their aspiring guidance, importantly valuable feedbacks and friendly advice amid my assignment. I am truly appreciative to
them for sharing their honest and illuminating views on various issue identified in the completion of the assignment. I also
want to express my exceptional appreciation to Dr. Deepika Gautam, Assistant Professor of Management, who gave me
the chance to work on such an interesting topic which likewise helped me in completing a great deal of exploration and I
came to think about such a large number of new things for which I am obligated to her from the core of my heart. I
additionally recognize with a profound feeling of respect, my appreciation towards my parents and member of my family,
in view of whom I have figured out how to finish this task on time and who have continuously upheld me ethically. Finally,
my appreciation goes to the majority of my companions who specifically or on the other hand in a roundabout way
helped me to finish this task. Any oversight in this brief acknowledgement does not mean absence of appreciation.
-NAMAN MISHRA B.A.LL.B - IV SEMESTER
TABLE OF CONTENTS S. NO. CONTENT PAGE NO.
1 ABSTRACT 5
2 INTRODUCTION 6-7
3 FRBM ACT 7-8
4 FEATURES OF THE FRBM ACT 8-9
5 AMENDMENTS MADE IN THE FRBM ACT 9-10
6 REVIEW COMMITTEE OF FRBM ACT 11
7 RECOMMENDATION MADE BY THE COMMITTEE 11-12
8 ESCAPE CLAUSE 13-14
9 CONCLUSION AND RECOMMENDATION 14
FISCAL DISCIPLINE AND BUDGET MANAGEMENT ACT
“It isn't what you earn but how spend it that fixes your class” ― Sinclair Lewis
ABSTRACT In recent decades, most of developed and developing countries have embarked upon rules based on fiscal
policy framework to achieve fiscal prudence and India is not an exception to it. A developing economy has to spend more
in order to increase the level of disposable income in the hands of its citizens. It has to undertake various projects which
can provide long term benefits to the people and can help raise their standard of living. Such projects involves huge
amount of investment which are met through various borrowings. Reckless borrowings results in a unproductive interest
expenditure, thereby depriving the nation with its income. In order to fix the responsibility of the government and prevent
it from unnecessary borrowings for unproductive purposes, the FRBM Act was enacted in India in the year 2003.
The Fiscal Responsibility and Budget Management Act (FRBMA), 2003 sets fiscal rules which seeks to foster fiscal
discipline on the Central Government and
helps in
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achieving a balanced budget with effective revenue management. The Act
aims at setting the
targets and suggests means of reducing fiscal and revenue deficits.
However, due to the international financial crisis that took place in 2007, the implementation of this act was postponed
and later on was suspended in 2009. The current paper focusses on the FRBM act and highlights its major features,
objectives, failures and on the basis of the observation recommendations are made at the end.
INTRODUCTION- Every developing country, needs external financial assistance to meet its developmental and other
expenses cost. These external assistance helps in increasing the country’s income in long run and are helpful in uplifting
the status of the economy. There are, however, few expenses that are not productive and do not, in return, benefit the
economy in the form of increased income. All the money spent on such expenses therefore are burden on the economy.
Expenses such as pensions, subsidies, interest on external loans etc are those which need to be curtailed and should be
kept within the reasonable limits. This is because if more money will be spent on such expenses, then there will be less
availability of funds for the developmental projects which will force the government to borrow money from outside and
will lead to heavy interest burden. When government’s expenditure exceeds its income a situation of fiscal deficit arises.
The government describes fiscal deficit in Indian as “the excess of total disbursements from the Consolidated Fund of
India, excluding the repayment of debt, over total receipts into the Fund (excluding the debt receipts) during a financial
year”. In other words Fiscal Deficit is the difference between the total income generated by the government (total taxes
and non-debt capital receipts) and its total expenditure. This difference
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is calculated in absolute as well as in percentage of the Gross Domestic Product (GDP) of the country. A recurring high
fiscal deficit states that the government
has been spending beyond its means.
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The government’s total income or receipts comprises of Revenue receipts such as Corporation Tax, Income Tax,
Custom Duties, Union Excise Duties, GST and taxes of Union territories (
GST or Goods and Services Tax which is collected by the Centre which includes CGST (Central Goods and Services Tax),
IGST (Integrated Goods and Services Tax) & GST Compensation Cess) and
Non-tax revenues such as Interest Receipts, Dividends and Profits, External Grants, Other non-tax revenues, Receipts of
union territories
whereas government’
s total expenditure comprises of Revenue Expenditure, Capital Expenditure, Interest Payments and Grants-in-aid
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for creation of capital assets. Fiscal Deficit = Total expenditure of the government (capital and revenue expenditure) –
Total income of the government (Revenue receipts + recovery of loans + other receipts) 1
If the total expenditure of the government exceeds its total revenue and non-revenue receipts in a given financial year,
then that gap is known as the fiscal deficit for the financial year.
The fiscal deficit is usually mentioned as a percentage of GDP.
For example, if the gap between the Centre’s expenditure and total income is Rs 5 lakh crore and the GDP of the country
is Rs 200 lakh crore, then the fiscal deficit is 2.5% of the GDP. In the late 1980s and early 1990s India too faced the
problem of large fiscal deficit. The large borrowings by the government led to such a precarious situation that the
government was not even able to pay for two weeks of imports resulting in economic crisis of 1991. Consequently, the
Economic reforms were introduced in the year 1991 and fiscal consolidation emerged as one of the key areas of reforms.
Consequently
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after a good start in the early nineties, the fiscal consolidation faltered after 1997-98. The
fiscal deficit again started rising after 1997-98. This situation of fiscal deficit continued till 2000 when it was first thought
to enforce a law that would force the government to limit its unproductive expenditures and curtail its borrowings. Hence
the Fiscal Responsibilities and Budget Management Act was passed in the year 2003 to put a check on government’s fiscal
responsibilities Later on, the implementation of FRBM Act was postponed and suspended due to financial crisis of 2007 2 .
FRBM ACT FRBM Bill was introduced by Yashwant Sinha who was the Finance Minister in the year 2000. The Bill was
initially introduced in the year 2000 to provide legal backing to the fiscal discipline so that it can be institutionalized in
India. The FRBM Act set targets for the Government of India so that it can achieve fiscal stability, provide RBI with the
flexibility to deal with inflation, improve the management of public funds, strengthen fiscal prudence and reduce fiscal
deficits. The provisions provided in the initial versions of the bill in the year 2000 were too drastic. After much discussions
and debate, a watered-down version of the bill was passed in 2003 that came to be known as the Fiscal Responsibility and
Budget Management Act but came into force on July 5, 2004. FRBM Act is simply is all about maintaining a balance
between Government revenue and government’s expenditure. FRBM act mainly focuses on fiscal discipline, efficient
management of expenditure, revenue and debt,
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macroeconomic stability, better coordination between fiscal and monetary policy, transparency in
the fiscal operation held by the Government and achieving a balanced budget. OBJECTIVES OF THE ACT The objectives
of passing the Fiscal Responsibility and Management Act are as follow- a. Firstly fix the responsibility of government for
establishing a better and transparent fiscal management system. b. Secondly ensure long term macroeconomic stability
by removing fiscal deficits. c. Thirdly ensure prudential debt management and limiting the debts and borrowings of
government for proper fiscal management 3 FEATURES OF THE ACT The Act was enacted with the basic aim of
controlling the fiscal deficit of the government in order to reduce the interest burden on the coming generations. To
achieve this objective, the various provisions focusing over it includes mechanism for increasing surplus and reducing
deficits, breach of fiscal targets only in case of national security and prohibition of borrowings by government from RBI.
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The Act also required the government to lay before the parliament three policy statements in each financial year namely
Medium Term Fiscal Policy Statement;
Fiscal Policy Strategy Statement and Macroeconomic Framework Policy Statement. 1. Revenue Deficit : In the initial
version of the Act proposed, the target was to reduce the revenue deficit by 0.5% of GDP or more every year from 2004-
05. It should have been reduced to zero within five years by the end of 2008-09and afterwards revenue surplus should
have been built up to discharge liabilities before time. 2. Fiscal Deficit: The draft proposal for the Act emphasised that the
government should reduce the fiscal deficit by 3% per year of GDP from 2004-05 and should further bring it to 2% of GDP
by the end of 2005-06.However, it was provided that both the revenue and fiscal deficit targets can only be breached on
the grounds of national security or any natural calamity faced that is declared as “national”. 3. National Debt: As per the
initial provisions of the Act, the government should ensure that the total liabilities of government should not exceed 9% of
GDP at the end of financial year 2005 and there should be reduction of 1% in this limit for every subsequent year. 4.
Borrowings from RBI: The Act prohibits the government to borrow any money from RBI except in case of meeting excess
cash payment in the form of temporary advance from RBI in accordance with the agreement
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with RBI. 5. Medium Term Fiscal Policy Statement: The Act also directed the government to present Medium Term Fiscal
Policy Statement in both
the Houses of Parliament along with the Annual Financial Statements which should indicate (a)
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Revenue Deficit as percentage of GDP, (b) Fiscal Deficit as percentage of GDP, (c) Tax Revenue as percentage of GDP
and (d) Total outstanding liabilities as percentage of GDP 4 . AMENDMENTS MADE IN THE
FRBM ACT- Fiscal rules were formally introduced in India with Fiscal Responsibility and Budget Management Act, 2003
(FRBM). Elimination of revenue deficit was among the foremost targets, along with reduction in fiscal deficit and a check
on Central Government borrowing from the RBI. Aimed at inter-generational equity in fiscal policy and debt management
consistent with fiscal sustainability, limits were placed on revenue deficit and fiscal deficit targets. Similarly for the states,
12th Finance Commission recommended that each state enact fiscal responsibility legislation which should, at the
minimum, provide
for elimination of revenue deficit by 2008-09 and reduction of fiscal deficit to 3 per cent of GSDP.
The post-FRBM period saw the sharpest ever sub-national fiscal consolidation in India. Both the fiscal and the revenue
deficit of the states fell dramatically in the 2000s, and by 2007–08 almost all states had achieved their respective FRBM
limits. The median fiscal deficit decreased from 5.7% in 2000-01 to a low of 1.9 per cent in 2007-08, considerably
overshooting the 3% fiscal deficit targets laid out in their FRBM. This improvement in state finances was aided by macro-
fiscal factors that were concurrent to the implementation of FRBM. The process of fiscal consolidation, was, however,
reversed after the 2008 global financial crisis. The central government deficit high due to slowdown in activity and the
resulting low tax revenue. The global financial crisis, slowdown in domestic growth and need for countercyclical fiscal
stimulus caused a temporary pause in fiscal consolidation 5 . Subsequently, 13th Finance Commission proposed revised
targets and suggested elimination of the revenue deficit as the long term and permanent target for the government. The
two most important features of the amended FRBM Act in the direction of expenditure reform were the concept of
“Effective Revenue Deficit” and the “Medium Term Expenditure Framework” Effective Revenue Deficit refers to
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the difference between revenue deficit and grants for creation of capital assets.
This was to help in reducing consumptive component of revenue deficit and create space for increased capital spending.
Effective revenue deficit has now became a new fiscal parameter. Whereas “Medium-term Expenditure Framework”
statement was to
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set forth a three-year rolling target for expenditure indicators. As per the amendments made in 2012, the Government
was asked to take appropriate measures to reduce the fiscal deficit, revenue deficit and effective revenue deficit in order
to eliminate effective revenue deficit by the 31st March, 2015 and thereafter build a adequate effective revenue surplus
and
also to reach revenue deficit of not more than 2 % of Gross Domestic Product by the 31st March, 2015
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and thereafter as may be prescribed by rules made by the Central Government.
Further, the Central Government was to entrust the Comptroller and Auditor-General of India to review periodically
whether the compliance of the provisions of FRBM Act are being done or not and such reviews had to be laid on the table
of both Houses of Parliament. The fiscal consolidation path for the Central Government entailed a decline in the revenue
deficit from 4.8 per cent of GDP as was projected for the fiscal year 2009-10, to a revenue surplus of 0.5 per cent of GDP
by 2014-15. This allowed for acceleration in capital expenditure of the centre to 3.5 per cent of GDP (even more if there
are disinvestment receipts). For the states, the target for fiscal deficit was 2.4 per cent of GDP by 2014-15, with surplus on
the revenue account. Kelkar Committee (2012), in its fiscal consolidation roadmap of the Central Government,
recommended that fiscal deficit be reduced to 4 per cent of GDP, effective revenue deficit to be eliminated and revenue
deficit to be reduced to 2 per cent of GDP by 2014-15. The Committee endorsed elimination of effective revenue deficit
rather than revenue deficit as the target. The effective revenue deficit reflects the structural component of imbalance in
the revenue account. Overall there was a shift in emphasis towards capital expenditure within the fiscal consolidation
framework. The 14th Finance Commission clearly suggested a larger correction for the centre than the states as a whole.
As per the Commission, the asymmetric correction path was primarily to ensure fiscal discipline for the union
government, given its large deficit and debt above the FRBM target. In terms of the roadmap, the debt stock was to
decline from 43.6 per cent for 2015-16 to 36.3 per cent of GDP in 2019-20 and revenue deficit from 2.56 per cent to 0.93
per cent of GDP for the Union government. For the States, under the fiscal roadmap drawn, the aggregate fiscal deficit of
the states was to change
from 2.76 per cent of GDP in 2015-16 to 2.74 per cent of GDP in 2019-20. State’s debt-GDP ratio would increase
marginally from 21.9 per cent in 2015-16 to 22.4 per cent in 2019-20. The consolidated fiscal deficit would decline from
6.4 per cent in 2015-16 to 5.7 per cent in 2019-20 and the total consolidated outstanding debt would decline from 64.5
per cent to 58.2 per cent in 2019-20 6
FRBM REVIEW COMMITTEE The government, under the chairmanship of N.K. Singh, constituted a five member
committee in May 2016 to review the FRBM Act. The Committee comprised of N.K. Singh who was the former Revenue &
Expenditure Secretary, A. Subramaniam the Chief Economic Advisor to Finance Ministry, Sumit Bose the former Finance
Secretary and Dr. Urjit Patel the then Deputy Governor of RBI. The committee was constituted to observe and provide
flexibility over fiscal deficit to cope up with difficult phase of economy. The committee was entrusted with the following
responsibilities: 1. To review the performance of FRBM Act since 2003 and to suggest ways for the achievement of targets
set under the Act keeping in view the current global economic scenario. 2. To look into the various aspects and factors
that affects the performance of FRBM Act while determining the new fiscal targets. 3. The committee was further asked to
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determine a fiscal target range in place of a static fiscal target of 3% as per the changing economic scenario. 4. The
committee was also asked to suggest the government on the issue of adjustment on fiscal deficit targets in alignment of
the expansion or contraction of credit in the context of rising global necessity. FRBM COMMITTEE RECOMMENDATION
The FRBM Review Committee submitted its report in January 2017.
The Committee proposed a draft Debt Management and Fiscal Responsibility Bill, 2017 which had to replace the Fiscal
Responsibility and Budget Management Act, 2003(FRBM Act).
Key recommendations of the Committee and major features of the draft Bill are as follow- •
Debt to GDP ratio:
The Committee suggested using debt as the primary target for
the fiscal policy. A debt to the GDP ratio of 60% should be targeted with a 40% limit for the centre and 20% limit for the
states. It is noted that majority of the countries that have adopted fiscal rules have targeted a debt to GDP ratio of
60%.Thetargeted debt to GDP ratio should be achieved by the end of 2023.This ratio is expected to be around 70% by
2017.To achieve the targeted debt to the GDP ratio, it further proposed yearly targets to progressively reduce the fiscal and
revenue
deficit till 2021. The draft Bill specifies the limits for fiscal and revenue deficits. Debt-GDP ratio limits have been specified
in the Committee Report. •
Fiscal Council: The Committee proposed to create autonomous Fiscal Council with a Chairperson and two other
members appointed by the centre.
To maintain its independence, it
further
proposed a non-renewable four-year term for the Chairperson and members. These people should not be employees in
the central or state governments at the time of appointment. • Role of the
Council: The role of the Council shall include preparing multi-year fiscal forecasts, recommending changes to the fiscal
strategy, improving quality of fiscal data, advising the government if conditions exist to deviate from the fiscal target, and
advising the government to take corrective action for non-compliance with the Bill. •
Deviations: The Committee observed that under the FRBM Act, the government can deviate from the targets in case of a
national calamity, national security or other exceptional circumstances. Allowing the government to notify these grounds
diluted the FRBM 2003 Act.
The Committee suggested that grounds on which the government can deviate from the targets should be clearly
specified,
and the government should not be allowed to notify any other circumstances. Further, the government shall be allowed
to deviate from the specified targets upon the advice of the Fiscal Council in the following circumstances
Firstly in case
of national security, war, national calamities and collapse of agriculture affecting output and
the incomes. Secondly in case of structural reforms in the economy resulting in a fiscal implications. Lastly in case of
decline in the
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real output growth of at least 3% below average of the previous four quarters.
These deviations cannot increase more than 0.5% of GDP in a year. • Debt trajectory for individual states: The Committee
recommended that the 15thFinance Commission should be asked to recommend the debt trajectory for
the individual states. This should be based on the
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track record of fiscal prudence and health. • Borrowings from the RBI: The draft Bill restricts the government from
borrowing money from the Reserve Bank of India (
RBI) except when: (i) the centre has to meet temporary shortfall in receipts, (
ii) when RBI subscribes to government securities need to finance any deviations
from
targets, or (iii) RBI purchases government securities from the secondary markets. • Review Committee: The draft Bill also
suggested that the centre should further establish a committee to review the functioning of the Bill in 2023-24. •
Dissent Note: Mr. Arvind Subramanian submitted a dissent note. He stated that: (i) allowing for deviations if the output is
3% lower than the four quarter average, may not leave flexibility to tackle economic downturns and growth booms, and
(ii) having multiple targets (debt, fiscal deficit and revenue deficit) with precise limits may make it difficult to achieve them
all. He suggested having a single objective, i.e. placing debt on a declining trajectory, and proposed alternate limits to
reduce debt and deficits till 2023.Further, he argued against specifying a revenue deficit target 7 . ESCAPE CLAUSE Escape
clause’ refers to a contract provision that specifies the conditions under which a party can be freed from an obligation.
The escape clause under the FRBM (Fiscal Responsibility and Budget Management) Act details a set of events in which the
Central government can actually deviate from fiscal deficit targets. The fiscal deficit is the total amount by which the
government’s expenses for a year exceed its revenue. Escape clauses provide flexibility to the governments to overshoot
fiscal deficit targets in times of need, enabling them to respond to economic shocks. To ensure escape clauses are not
misused, they are to be allowed only in exceptional circumstances, and with a check on the quantum of deviation. In
2017, the FRBM Review Committee headed by NK Singh said that the exceptional circumstances cited in the FRBM Act,
2003 were defined very opaquely and were liable to misuse. In 2018, the FRBM Act was amended to specify three
conditions upon which the escape clause can be invoked. In case of
over-riding considerations of national security, acts of war, and calamities of national proportion and collapse of
agriculture severely affecting farm output and incomes.
Secondly in
far-reaching structural reforms in the economy with unanticipated fiscal implications.
Thirdly in
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a sharp decline in real output growth of at least 3 percentage points below the average for the previous four quarters.
The FRBM amendments also mentioned that the deviation from the stipulated fiscal deficit target must not exceed 0.5
percentage points in a year. In the recent Budget, the government seems to have invoked the second condition. The
quantum of deviation taken was the upper end of the limit — 0.5 percentage points. Do note that the term ‘escape clause’
is not used in the FRBM Act, but only in the FRBM Review Committee report 8 . CONCLUSION AND RECOMMENDATION
From the above observation, it is clearly evidenced that the FRBM act was not effective in case of reducing revenue
expenditure in India particularly after the global economic crisis. Hence, it is inevitable for Government of India to
compress capital expenditure to achieve fiscal targets fixed under FRBM regime. Thus, paper suggest government to
empirically evaluate which component of public expenditure affect economic growth and then decide how to reduce
unnecessary expenditure and invest those revenue resources on social and economic infrastructure development in order
to bring India on sustained economic development path with macro-economic stability in the long run through efficient
expenditure management and expenditure control policies.
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India has adopted fiscal rules for more than a decade. The fiscal rules have generally not been followed by the Central
Government, especially after 2008 mainly because of the global crisis. In this context, an important question is whether
there is need for stiff fiscal rules and should these be adhered strictly or prudently in the welfare of the society. In view
of the changing circumstances in the economy, probably, there is need for regular and constant review of the fiscal
policy and targets contained in
the FRBM, as circumstances can change in the economy.
A strong focus on fiscal prudence, assessment of productivity of government expenditure, avoidance of any form of
fiscal engineering, establishment of a long-term fiscal policy with a medium-term intermediate target system, emphasis
on government investment rather than spending and separation of debt and monetary management will be
instrumental in the effective and efficient operation of FRBMA.
One should try to remove the vagueness in the Escape clause so that it cannot be misused by the government.
1 Adam Hayes, Fiscal Deficit, INVESTOPEDIA( March28,2020), https://www.investopedia.com/terms/f/fiscaldeficit.asp. 2

Keshav Singh, Flexibility under the FRBM act, DRISHTI IAS(March 30,2020), https://www.drishtiias.com/daily-
updates/daily-news-analysis/flexibility-under-the-frbm-act. 3 Shishir Gujarati, FRBM ACT- A STEP TOWARDS FISCAL
DISCIPLINE, RESEARCHGATE(March,2017), https://www.researchgate.net/publication/318593423_FRBM_ACT-
_A_STEP_TOWARDS_FISCAL_DISCIPLINE. 4 Afra Javaid, FRBM Act- All you need to know, JAGRAN JOSH( April14, 2020),
https://www.jagranjosh.com/general-knowledge/frbm-act-1586857492-1. 5 Charan Singh, A Review of the FRBM Act,
SSRN( June17,2017), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2981526. 6 Sunita Abraham, Term of the day:
What is FRBM Act, Livemint( January 21, 2020), https://www.livemint.com/money/personal-finance/term-of-the-day-
what-is-frbm-act-11579620857316.html. 7 Vatsal Khullar, Report Summary: FRBM Review Committee, PRS Legislative
Research( April 26, 2017),
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https://www.prsindia.org/sites/default/files/parliament_or_policy_pdfs/1493207354_FRBM%20Review%20Committee%
20Report%20Summary.pdf. 8
Satya Sontanam, All you wanted to know about ‘escape clause’, THE HINDU Buisnessline( Febuary 10,2020),
https://www.thehindubusinessline.com/opinion/columns/slate/all-you-wanted-to-know-about-escape-
clause/article30784478.ece.
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achieving a balanced budget with effective revenue achieving a balanced budget with effective revenue
management. The Act management. The Act
https://www.iimb.ac.in/sites/default/files/2018-06/WP%20No.%20550.pdf
targets and suggests means of reducing fiscal and targets and suggests means of reducing fiscal and
revenue deficits. revenue deficits.
is calculated in absolute as well as in percentage of the is calculated both in absolute terms and also as a
Gross Domestic Product (GDP) of the country. A recurring percentage of the Gross Domestic Product (GDP) of the
high fiscal deficit states that the government country. How the Government meets the Fiscal Deficit?
The government
https://aspirantsnest.com/general-knowledge-for-competitive-exams/fiscal-deficitsimplified
The government’s total income or receipts comprises of the government's total income? Well, it has two
Revenue receipts such as Corporation Tax, Income Tax, components - revenue receipts and non-tax revenues.
Custom Duties, Union Excise Duties, GST and taxes of Revenue receipts of the government include Corporation
Union territories ( Tax, Income Tax, Custom Duties, Union Excise Duties, GST
and taxes of Union territories.
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Non-tax revenues such as Interest Receipts, Dividends Non-tax revenues     include

and Profits, External Grants, Other non-tax revenues, Interest Receipts, Dividends and Profits, External Grants,
Receipts of union territories Other non-tax revenues and Receipts of union territories
for creation of capital assets. Fiscal Deficit = Total for calculation Fiscal Deficit Fiscal Deficit = Total
expenditure of the government (capital and revenue expenditure of the government (capital and revenue
expenditure) – Total income of the government (Revenue expenditure) – Total income of the government (Revenue
receipts + recovery of loans + other receipts) 1 receipts + recovery of loans + other receipts).
https://aspirantsnest.com/general-knowledge-for-competitive-exams/fiscal-deficitsimplified
The fiscal deficit is usually mentioned as a percentage of The fiscal deficit is usually mentioned as a percentage of
GDP. GDP.
after a good start in the early nineties, the fiscal After a good start in the early nineties, the fiscal
consolidation faltered after 1997-98. The consolidation faltered after 1997-98. The
https://www.slideshare.net/OECDtax/session-one-fiscal-matrix-the-indian-experience-meeting-2018
macroeconomic stability, better coordination between macroeconomic stability; • Better coordination between
fiscal and monetary policy, transparency in fiscal and monetary policy; • Transparency in
https://empowerias.com/blog/daily-articles/fiscal-responsibility-and-budget-management-act-gs-3-e ...
11/15
The Act also required the government to lay before the The act also ensures that government shall present before
parliament three policy statements in each financial year the
namely Medium Term Fiscal Policy Statement;         &
nbsp; State Legislative Assembly in each financial
year, the medium term fiscal policy statement
https://kb.icai.org/pdfs/PDFFile5b28bf70899f54.66618463.pdf
with RBI. 5. Medium Term Fiscal Policy Statement: The Act with 2004-2005. 8.    Medium term
also directed the government to present Medium Term fiscal policy statement The eighth important feature of
Fiscal Policy Statement in both amended FRBM bill 2000 or FRBM Act 2003 is that the
central government should present medium term fiscal
policy statement in both
https://pdfslide.net/documents/fiscal-responsibility-and-budget-management-frbm-act-2003-55844a8a ...
Revenue Deficit as percentage of GDP, (b) Fiscal Deficit as revenue deficit as a percentage of GDP, fiscal
percentage of GDP, (c) Tax Revenue as percentage of GDP deficit as a percentage of GDP, tax revenue as a
and (d) Total outstanding liabilities as percentage of GDP 4 percentage of GDP and total outstanding liabilities
. AMENDMENTS MADE IN THE as a percentage of GDP be projected in the
https://empowerias.com/blog/daily-articles/fiscal-responsibility-and-budget-management-act-gs-3-e ...
for elimination of revenue deficit by 2008-09 and for elimination of revenue deficit by 2014-15 and
reduction of fiscal deficit to 3 per cent of GSDP. containment of fiscal deficit to three per cent of GSDP
the difference between revenue deficit and grants for the difference between revenue deficit, and grants for
creation of capital assets. creation of capital assets.
12/15
set forth a three-year rolling target for expenditure set      a three-year rolling
indicators. As per the amendments made in 2012, the target for expenditure indicators. As per the amendments
Government was asked to take appropriate measures to     in 2012, the Central
reduce the fiscal deficit, revenue deficit and effective Government has to take appropriate measures to reduce
revenue deficit in order to eliminate effective revenue the fiscal deficit, revenue deficit and effective revenue
deficit by the 31st March, 2015 and thereafter build a deficit        to
adequate effective revenue surplus and eliminate the effective revenue deficit by the 31st March,
2015 and thereafter build up adequate effective revenue
surplus and
https://www.indianeconomy.net/splclassroom/what-is-fiscal-responsibility-and-budget-management-fr ...
and thereafter as may be prescribed by rules made by the and thereafter as may be prescribed by rules made by the
Central Government. Central Government.
https://www.indianeconomy.net/splclassroom/what-is-fiscal-responsibility-and-budget-management-fr ...
from 2.76 per cent of GDP in 2015-16 to 2.74 per cent of from ` 4,146 Crores (24 per cent of total receipts) Assam
GDP in 2019-20. State’s debt-GDP ratio would increase FRBM Act 2005 25 in 2005-06 to ` 10,630 Crores (32 per
marginally from 21.9 per cent in 2015-16 to 22.4 per cent cent of total receipts) in 2009- 10. • rate of growth of debt
in 2019-20. The consolidated fiscal deficit would decline capital receipts decreased from 152.90 per cent in 2008-
from 6.4 per cent in 2015-16 to 5.7 per cent in 2019-20 09 to (-) 23.91 per cent in 2009-10 while ratio of growth
and the total consolidated outstanding debt would of non-debt receipts increased from (-) 12.50 per cent in
decline from 64.5 per cent to 58.2 per cent in 2019-20 6 2008-09 to (-) 5.71 per cent in 2009-10. •
   The of growth of debt capital
receipts increased from (-) 57.05 per cent in 2005-06 to
(-) 23.91 per cent in 2009-10
real output growth of at least 3% below average of the real output growth of at least 3 percentage points below
previous four quarters. the average for the previous four quarters"
https://www.livemint.com/Opinion/hcsTsvyPSFPaTFmvYCljBO/Select-thoughts-on-the-FRBM-report.html
13/15
over-riding considerations of national security, acts of Over-riding consideration of national security, acts of war,
war, and calamities of national proportion and collapse of    calamities of national proportion and
agriculture severely affecting farm output and incomes. collapse of agriculture severely affecting farm output and
incomes. •
far-reaching structural reforms in the economy with Far-reaching structural reforms in the economy with
unanticipated fiscal implications. unanticipated fiscal implications. •
a sharp decline in real output growth of at least 3 a “sharp in

percentage points below the average for the previous four         &
quarters. nbsp;real output growth of at least 3 percentage points
below the average for the previous four quarters"
https://www.livemint.com/Opinion/hcsTsvyPSFPaTFmvYCljBO/Select-thoughts-on-the-FRBM-report.html
India has adopted fiscal rules for more than a decade. The India has adopted fiscal rules for more than a decade. The
fiscal rules have generally not been followed by the fiscal rules have generally not been followed by the
Central Government, especially after 2008 mainly Central Government, especially after 2008 mainly
because of the global crisis. In this context, an important because of the global crisis. In this context, an important
question is whether there is need for stiff fiscal rules and question is whether there is need for stiff fiscal rules and
should these be adhered strictly or prudently in the should these be adhered strictly or prudently in the
welfare of the society. In view of the changing welfare of the society. In view of the changing
circumstances in the economy, probably, there is need for circumstances in the economy, probably, there is a need
regular and constant review of the fiscal policy and targets for a regular and constant review of the fiscal policy and
contained in targets contained in
14/15
A strong focus on fiscal prudence, assessment of a strong focus on fiscal prudence, assessment of
productivity of government expenditure, avoidance of any productivity of government expenditure, avoidance of any
form of fiscal engineering, establishment of a long-term form of fiscal engineering, establishment of a long-term
fiscal policy with a medium-term intermediate target fiscal policy with a medium-term intermediate target
system, emphasis on government investment rather than system, emphasis on government investment rather than
spending and separation of debt and monetary spending and separation of debt and monetary
management will be instrumental in the effective and management will be instrumental in the effective and
efficient operation of FRBMA. efficient operation of FRBMA.
https://www.prsindia.org/sites/default/files/parliament_or https://www.prsindia.org/sites/default/files/parliament_or
_policy_pdfs/1493207354_FRBM%20Review%20Committ _policy_pdfs/1493207354_FRBM Review Committee
ee%20Report%20Summary.pdf. 8 Report Summary.pdf
https://www.prsindia.org/report-summaries/frbm-review-committee
15/15

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Analyzed document FRBM REV2 (1)(1).docx (D75495013)

Submitted 6/23/2020 8:33:00 AM

Submitter email arun@hpnlu.ac.in

Analysis address hpnlu.arun.hpnlu@analysis.urkund.com

Sources included in the report

URL: https://aspirantsnest.com/general-knowledge-for-competitive-exams/fiscal-deficitsi ...

URL: https://www.moneycontrol.com/news/business/economy/explained-what-is-fiscal-defici ...

URL: https://www.slideshare.net/OECDtax/session-one-fiscal-matrix-the-indian-experience ...

URL: https://empowerias.com/blog/daily-articles/fiscal-responsibility-and-budget-manage ...

URL: https://pdfslide.net/documents/fiscal-responsibility-and-budget-management-frbm-ac ...

URL: https://www.indianeconomy.net/splclassroom/what-is-fiscal-responsibility-and-budge ...

URL: https://www.livemint.com/Opinion/hcsTsvyPSFPaTFmvYCljBO/Select-thoughts-on-the-FRB ...

2020-2021 Research Report On Review of F.R.B.M. Act

-NAMAN MISHRA B.A.LL.B - IV SEMESTER

TABLE OF CONTENTS S. NO. CONTENT PAGE NO.

3 FRBM ACT 7-8

4 FEATURES OF THE FRBM ACT 8-9

5 AMENDMENTS MADE IN THE FRBM ACT 9-10

6 REVIEW COMMITTEE OF FRBM ACT 11

7 RECOMMENDATION MADE BY THE COMMITTEE 11-12

8 ESCAPE CLAUSE 13-14

9 CONCLUSION AND RECOMMENDATION 14

FISCAL DISCIPLINE AND BUDGET MANAGEMENT ACT

achieving a balanced budget with effective revenue management. The Act

aims at setting the

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targets and suggests means of reducing fiscal and revenue deficits.

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has been spending beyond its means.

57% MATCHING BLOCK 4/24 https://www.moneycontrol.com/news/business/eco ...

82% MATCHING BLOCK 5/24 https://www.moneycontrol.com/news/business/eco ...

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The fiscal deficit is usually mentioned as a percentage of GDP.

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71% MATCHING BLOCK 12/24 https://empowerias.com/blog/daily-articles/fis ...

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and thereafter as may be prescribed by rules made by the Central Government.

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Debt to GDP ratio:

The Committee suggested using debt as the primary target for

To maintain its independence, it

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the individual states. This should be based on the

93% MATCHING BLOCK 19/24 https://www.slideshare.net/OECDtax/session-one ...

100% MATCHING BLOCK 20/24 https://www.slideshare.net/OECDtax/session-one ...

far-reaching structural reforms in the economy with unanticipated fiscal implications.

100% MATCHING BLOCK 21/24 https://www.livemint.com/Opinion/hcsTsvyPSFPaT ...

the FRBM, as circumstances can change in the economy.

100% MATCHING BLOCK 23/24 https://www.iimb.ac.in/sites/default/files/201 ...

1 Adam Hayes, Fiscal Deficit, INVESTOPEDIA( March28,2020), https://www.investopedia.com/terms/f/fiscaldeficit.asp. 2

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Non-tax revenues such as Interest Receipts, Dividends Non-tax revenues &nbsp;&nbsp;&nbsp;&nbsp;include

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Non-tax revenues such as Interest Receipts, Dividends Non-tax revenues include