FRBM ACT UPSC
Understanding FRBM Act UPSC: Fiscal Responsibility and Budget Management Act
The Fiscal Responsibility and Budget Management Act (FRBM Act) is a pivotal legislative measure enacted by the Indian Parliament. Let’s delve into what this act entails and its significant aspects.
FRBM Act UPSC: A Brief Overview
The FRBM Act is designed to achieve multiple objectives, including ensuring fiscal stability, curbing India’s fiscal deficit, enhancing macroeconomic stability, and effectively managing public funds. At its core, the act aims to promote financial prudence by presenting well-balanced budgets.
Key Goals of FRBM Act UPSC
The primary objective of the FRBM Act was to address the revenue deficit of the country and bring down the fiscal deficit to a sustainable 3% of the GDP by March 2008. However, the global financial crisis of 2007 prompted a deferment of the timeline for implementing the FRBM Act’s goals, ultimately leading to its suspension in 2009.
Challenges and Post-Crisis Scenario
The onset of the global financial crisis necessitated a reassessment of the FRBM Act’s implementation. The initial timeline extension and subsequent suspension were responses to the economic challenges faced during that period.
Recommendations for Reinstatement
In 2011, recognizing the ongoing recovery process, the Economic Advisory Council formally recommended the Government of India to explore reinstating the provisions of the FRBM Act. This suggestion aimed at aligning with the act’s original objectives and fostering fiscal responsibility.
In essence, the FRBM Act represents a crucial tool in India’s fiscal framework, aiming to balance budgets, manage deficits, and promote responsible financial practices.
Understanding FRBM Act UPSC Provisions
Let’s unravel the key provisions of the Fiscal Responsibility and Budget Management Act, shedding light on its targets, fiscal policies, and the current scenario.
Deficit Targets: Navigating a Path to Fiscal Discipline
The FRBM Act lays out a clear roadmap for the fiscal deficit, aiming for a gradual reduction from 3.5% of GDP in 2023-24 to 3% by 2025-26. However, it acknowledges the need for flexibility in exceptional circumstances, such as economic downturns, allowing the government to adapt its approach.
Debt Ceiling: Keeping Fiscal Health in Check
Another critical provision is the imposition of a ceiling on the government’s debt-to-GDP ratio, ensuring it stays below 40%. This measure is integral to maintaining fiscal responsibility and preventing excessive debt accumulation.
Fiscal Policy Statements: Strategic Planning Unveiled
The government is mandated to present a Medium-Term Fiscal Policy Statement (MTFPS), outlining its fiscal strategy for the next three years. Additionally, an annual budget document provides a comprehensive overview of the current year’s finances. These statements offer transparency and strategic insight into the government’s fiscal decisions.
Escape Clause: Navigating Extraordinary Circumstances
Recognizing the unpredictability of emergencies like natural disasters or war, the FRBM Act incorporates an escape clause. In such situations, the government can temporarily deviate from the deficit targets, provided it justifies the departure to Parliament.
Criticisms and Amendments: Striking a Balance
The Act has faced criticism for its rigid targets, potentially impeding government spending in critical sectors during crises. Multiple amendments have been introduced over the years, sparking concerns about the Act’s effectiveness and the consistency of its application.
Current Scenario: Balancing Fiscal Goals Amid Challenges
As of December 2023, India’s fiscal deficit stands at approximately 4.6% of GDP, surpassing the FRBM Act’s target. The government grapples with the delicate task of harmonizing fiscal consolidation with the imperative to stimulate economic growth, especially in the face of global economic uncertainties. The challenge lies in striking a delicate balance for sustained financial health and economic vitality.