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    FRBM Act 2003-1

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    Rishi Kumar
    The FRBM Act of 2003 aimed to reduce the government's fiscal deficit and bring it down to 3% of GDP by 2008-09 through reducing revenue deficit and limiting borrowing. However, the global financial crisis prevented these targets from being met. In 2017, the NK Singh Committee recommended revising the targets to reduce fiscal and revenue deficits more gradually by 2022-23 and focus on total debt reduction. It also suggested establishing a Fiscal Council and including an escape clause for abnormal economic conditions. The COVID-19 pandemic required abandoning these revised targets.

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    FRBM Act 2003-1

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    Rishi Kumar
    38 views2 pages
    The FRBM Act of 2003 aimed to reduce the government's fiscal deficit and bring it down to 3% of GDP by 2008-09 through reducing revenue deficit and limiting borrowing. However, the global financial crisis prevented these targets from being met. In 2017, the NK Singh Committee recommended revising the targets to reduce fiscal and revenue deficits more gradually by 2022-23 and focus on total debt reduction. It also suggested establishing a Fiscal Council and including an escape clause for abnormal economic conditions. The COVID-19 pandemic required abandoning these revised targets.

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    The FRBM Act of 2003 aimed to reduce the government's fiscal deficit and bring it down to 3% of GDP by 2008-09 through reducing revenue deficit and limiting borrowing. However, the global financial crisis prevented these targets from being met. In 2017, the NK Singh Committee recommended revising the targets to reduce fiscal and revenue deficits more gradually by 2022-23 and focus on total debt reduction. It also suggested establishing a Fiscal Council and including an escape clause for abnormal economic conditions. The COVID-19 pandemic required abandoning these revised targets.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    38 views2 pages

    FRBM Act 2003-1

    Uploaded by

    Rishi Kumar
    The FRBM Act of 2003 aimed to reduce the government's fiscal deficit and bring it down to 3% of GDP by 2008-09 through reducing revenue deficit and limiting borrowing. However, the global financial crisis prevented these targets from being met. In 2017, the NK Singh Committee recommended revising the targets to reduce fiscal and revenue deficits more gradually by 2022-23 and focus on total debt reduction. It also suggested establishing a Fiscal Council and including an escape clause for abnormal economic conditions. The COVID-19 pandemic required abandoning these revised targets.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    | GS Pre Cum Main Foundation Course for CSE-2022-23 by Kapuria Sir

    GS PRE CUM MAIN


    FOUNDATION COURSE
    for CSE – 2022-23
    INDIAN ECONOMY

    FISCAL RESPONSIBILITY AND BUDGET


    MANAGEMENT (FRBM) ACT, 2003
    COMPOSITION OF CONSUMER PRICE INDEX

    by
    Kapuria
    P a g e | Sir
    1
    | GS Pre Cum Main Foundation Course for CSE-2022-23 by Kapuria Sir

    FISCAL RESPONSIBILITY AND BUDGET


    MANAGEMENT (FRBM) ACT, 2003
    The Act was passed in 2003. Its principal objective was that the government should adopt a path of fiscal
    consolidation by reducing and rationalising its expenditure on the overhead and by increasing its revenue on
    the other. The Act laid down some rules to be followed by the government for achieving fiscal consolidation.

    S
    Three of these rules, among others, were as follows:
    1. Government should bring down its Revenue Deficit from 2.1% of the GDP in 2003 by 0.5 percent every
    year thereafter so that revenue deficit falls to zero by 2008-09.

    A
    2. Fiscal deficit should be brought down from 4.5% in 2003-04 by 0.3 percent every year so that it is not
    more than 3 percent by 2008-09.

    I
    3. Government should cease to borrow from the RBI except by Ways and Means advances.
    The targets laid down were not met as there was global financial crisis in 2008.
    A comprehensive review of this Act was carried out by N.K. Singh Committee set up in 2016 which gave its

    T
    report in early 2017. Major recommendations of this committee are as follows:
    1. Government should reduce its revenue deficit from 2.1 percent in 2016-17 by 0.25 percent each year
    thereafter so that by 2022-23 revenue deficit is not more than 0.8 percent of GDP.

    X
    2. Fiscal Deficit should be brought down to 3 percent in 2017-18 and it should remain 3 percent till 2019-20.
    Thereafter it should be reduced by 0.2 percent each year so that it is not more than 2.5 percent by 2022-23.
    3. Total outstanding debt of the government should be brought down from 70 percent of GDP in 2016-17 (49
    percent of the Centre and 21 percent of the States) to 60 percent by 2022-23

    E
    (40 percent of the Centre and 20 percent of States).
    4. Reduction of total debt should be the principal focus of Act instead of Fiscal Deficit because Global credit
    rating agencies adopt total debt as the principal criteria for awarding rating.
    5. There should be an ‘Escape Clause’ incorporated in the Act which would give flexibility to the government

    N
    to escape meeting its laid down fiscal targets in the event of abnormal conditions in the economy like
    threat of war, epidemics, natural calamities etc. However, deviation from targets should not been more
    than 0.5 percent.
    6. Government should set up an expert body called Fiscal Council which would prepare
    multi-year fiscal projections, monitor fiscal parameters, assess fiscal situation from time to time and
    recommend targets from time to time as an autonomous body.
    7. The Act should be renamed ‘Debt Management and Fiscal Responsibility Act and Rules’
    The government accepted the recommendation of the committee.
    However, the Pandemic which struck the world in early 2020 led to unprecedented panic and financial stress
    throughout the world. As a result the targets laid down in the revised Act had to be abandoned.
    The government revised the fiscal target to 4.5 percent to be achieved by 2025-26.

    Page |2

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