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What is FRBM Act

FRBM Act

About FRBM Act

What is FRBM Act

The Fiscal Responsibility and Budget Management Act (FRBM Act), 2003, establishes financial discipline to reduce fiscal deficit.
 
When was the FRBM Act enacted? Who introduced it in India?
 
The FRBM Bill was introduced by the then finance minister, Yashwant Sinha, in 2000. The Bill, approved by the Union Cabinet in 2003, became effective from July 5, 2004.
 
What are the objectives of the FRBM Act?
 
The FRBM Act aims to introduce transparency in India's fiscal management systems. The Act’s long-term objective is for India to achieve fiscal stability and to give the Reserve Bank of India (RBI) flexibility to deal with inflation in India. The FRBM Act was enacted to introduce more equitable distribution of India's debt over the years.
 
Key features of the FRBM Act
 
The FRBM Act made it mandatory for the government to place the following along with the Union Budget documents in Parliament annually:
 
1. Medium Term Fiscal Policy Statement
 
2. Macroeconomic Framework Statement
 
3. Fiscal Policy Strategy Statement
 
The FRBM Act proposed that revenue deficit, fiscal deficit, tax revenue and the total outstanding liabilities be projected as a percentage of gross domestic product (GDP) in the medium-term fiscal policy statement.
 
FRBM Act exemptions
 
On grounds of national security, calamity, etc, the set targets of fiscal deficits and revenue could be exceeded.
 
How effective has the FRBM Act been?
 
Several years have passed since the FRBM Act was enacted, but the Government of India has not been able to achieve targets set under it. The Act has been amended several times.
 
In 2013, the government introduced a change and introduced the concept of effective revenue deficit. This implies that effective revenue deficit would be equal to revenue deficit minus grants to states for the creation of capital assets. In 2016, a committee under N K Singh was set up to suggest changes to the Act. According to the government, the targets set under FRBM Act previously were too rigid.
 
N K Singh Committee's recommendations were as follows:
 
Targets: The committee suggested using debt as the primary target for fiscal policy and that the target must be achieved by 2023.
 
Fiscal Council: The committee proposed to create an autonomous Fiscal Council with a chairperson and two members appointed by the Centre (not employees of the government at the time of appointment)
 
Deviations: The committee suggested that the grounds for the government to deviate from the FRBM Act targets should be clearly specified
 
Borrowings: According to the suggestions of the committee, the government must not borrow from the RBI, except when...
 
a. the Centre has to meet a temporary shortfall in receipts
 
b. RBI subscribes to government securities to finance any deviations
 
c. RBI purchases government securities from the secondary market

Read full FRBM documents
 

Latest Updates on FRBM Act

Meghalaya govt accepts FRBM Act amendment, allows Rs 400 cr borrowing boost

3 min read Last Updated :Nov 16 2023 | 9:25 PM IST
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Govt may not amend FRBM Act again, but aims for 5.5-6% deficit in FY24

4 min read Last Updated :Jan 19 2023 | 11:19 PM IST
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'Parliamentary illiteracy' on fiscal issues needs to be overcome: N K Singh

3 min read Last Updated :Oct 04 2022 | 11:52 PM IST
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As freebies debate rages, a look at states' contingent liabilities

5 min read Last Updated :Aug 30 2022 | 9:12 PM IST
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India at 75: Prudent public finance policy still remains a challenge

11 min read Last Updated :Aug 10 2022 | 10:18 AM IST
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Amending the FRBM Act

6 min read Last Updated :Feb 22 2022 | 10:58 PM IST
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Fiscal consolidation: States lack the flexibility that the Centre enjoys

6 min read Last Updated :Mar 17 2021 | 5:09 PM IST
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Banking on slower recovery

5 min read Last Updated :Mar 09 2021 | 11:56 PM IST
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In search of a new fiscal road map

7 min read Last Updated :Dec 29 2020 | 10:57 PM IST
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Govt may have to apply brakes on existing fiscal consolidation road map

5 min read Last Updated :Dec 26 2020 | 1:06 AM IST
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Barking up the wrong tree

7 min read Last Updated :Oct 20 2020 | 11:59 PM IST
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Centre, states may welcome N K Singh's plan for fiscal deficit range

4 min read Last Updated :Sep 16 2020 | 9:26 PM IST
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UP to bring ordinance to raise borrowing limit to 5% of state GDP

3 min read Last Updated :Jun 22 2020 | 4:26 PM IST
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India must shed its protectionist attitude: Ex-CEA Arvind Subramanian

2 min read Last Updated :Jun 04 2020 | 3:03 AM IST
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Covid-19: FRBM framework will need to be updated, says Arvind Subramanian

2 min read Last Updated :Jun 04 2020 | 12:43 AM IST
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PM hints at lockdown extension till Apr 30; industrial activity may begin

4 min read Last Updated :Apr 12 2020 | 12:15 AM IST
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Little option for govt other than amending FRBM Act to widen fiscal deficit

5 min read Last Updated :Apr 08 2020 | 5:43 PM IST
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Understanding Budget policy

8 min read Last Updated :Feb 28 2020 | 9:53 AM IST
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Odisha tables revenue surplus budget with total outgo pegged at Rs 1.5 trn

3 min read Last Updated :Feb 18 2020 | 8:37 PM IST
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Budget 2020 was disappointing for lacking vision, says Ashima Goyal

2 min read Last Updated :Feb 17 2020 | 1:51 AM IST
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