A minimum annual reduction – 0.3% of GDP. FRBM act UPSC On 1 February 2017, the finance minister offered the union budget in the parliament revealing that a committee would be started for the reconsideration of application of the Fiscal Responsibility and Budget Management Act (FRBM Act). Under the Fiscal Responsibility and Budget Management Act (FRBMA) 2003, both the Centre and States were supposed to wipe out revenue deficit and cut fiscal deficit to 3% of GDP by 2008-09, thus bringing much needed fiscal discipline. These are: The FRBM Act set targets for fiscal deficit and revenue deficit. Revenue Deficit Target – revenue deficit should be completely eliminated by March 31, 2015. The Fiscal Responsibility and Budget Management (FRBM) Act was enacted in 2003 which set targets for the government to reduce fiscal deficits. This terminology was innovated by the NK Singh Committee on FRBM. Critical Analysis of the FRBM Act The act was passed to make the central government and finance minister accountable to parliament for fiscal discipline. Revenue deficit to be eliminated by the 31st of March 2009. The FRBM Review Committee headed by former Revenue Secretary, NK Singh was appointed by the government to review the implementation of FRBM. But the benefit from high expenditure and debt today goes to the present generation. The global financial crisis (2007-08) led the government to infuse resources in the economy as the fiscal stimulus in 2008. What is FRBM Act 2003? Additionally, the act was expected to give the necessary flexibility to Reserve Bank of India (RBI) for managing inflation in India. It is important to keep reading newspaper articles and editorials on this subject as it can be asked directly or indirectly in the IAS exam. The Report was made public in April 2017. A new concept called Effective Revenue Deficit (E.R.D) was also introduced. transparency in the fiscal operation of the Government. In 2019-20, total expenditure rises by 13.30% over 2018-19 RE. The government believed the targets were too rigid. What is the significance of FRBM with respect to Indian economy? If there is no fiscal discipline, the government (executive) may spend as it wishes. What is Fiscal responsibility and Budget Management (FRBM) Act? FRBMA was brought into effect from July 5, 2004. It is a relevant topic for the UPSC 2021 and falls under the topic “Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment” in General Studies Paper 3. Hence in 2000, they introduced a bill to bring responsibility and discipline in matters of expenditure and debt. The task was to review the performance of the FRBM Act and suggest the necessary changes to the provisions of the act. The Fiscal Responsibility and Budget Management (FRBM) Act was enacted in 2003 which set targets for the government to reduce fiscal deficits. Alex is the founder of ClearIAS and one of the expert Civil Service Exam Trainers in India. The FRBM Act is a law enacted by the Government of India in 2003 to ensure fiscal discipline – by setting targets including reduction of fiscal deficits and elimination of revenue deficit. The FRBM act also provided for certain documents to be tabled in the Parliament of India, along with Budget, annually with regards to the country’s fiscal policy. The Fiscal Responsibility and Budget Management Bill (FRBM Bill) was introduced in India by the then Finance Minister of India, Mr.Yashwant Sinha in December 2000. This article spoke about the FRBM Act, its provisions, and targets. Fiscal deficit of 3.8% estimated in Revised Estimates (RE) 2019-20 and 3.5% for Budget Estimates (BE) 2020-21. High fiscal deficit was the one major macroeconomic problem faced … Why do we need a new Act? The FRBM Act 2003 in its amended form was passed by the government to bring fiscal discipline and to implement a prudent fiscal policy. This ratio was 70% in 2017. frbm act - Budget 2018-19 has proposed amending the FRBM Act again, which will shift the target of 3% fiscal deficit-GDP ratio to end-March 2021.The FRBM Act is a fiscal sector legislation enacted by the government of India in 2003. The latest provisions of the FRBM act requires the government to limit the fiscal deficit to 3% of the GDP by March 31, 2021, and the debt of the central government to 40% of the GDP by 2024-25, among others. The act also intended to give the required flexibility to the Central Bank for managing inflation in India. For more articles on important concepts for the IAS exam and updates on UPSC current affairs, please visit BYJU’S Free IAS Prep regularly. It is an act of the parliament that set targets for the Government of India to establish financial discipline, improve the management of public funds, strengthen fiscal prudence, and reduce its fiscal deficits. Fiscal Responsibility and Budget Management (FRBM) Act. Total Debt to be reduced to 9% of the GDP (a target increased from the original 6% requirement in 2004–05). Every time when the Union Budget of India is presented, the term FRBM is seen in the news. The central government agreed to the following fiscal indicators and targets, subsequent to … A minimum annual reduction of 0.5% of GDP. The requirement of ‘Medium Term Expenditure Framework Statement’ was also added via amendment in FRBMA. What is FRBM Act? Therefore, fiscal targets had to be postponed temporarily in view of the global crisis. That is, if credit growth falls, the fiscal deficit may need to rise and if credit rises, the fiscal deficit ought to fall — to ensure adequate money supply to the economy. 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