Under the Fiscal Responsibility and Budget Management Act (FRBMA) , both the Centre and States were supposed to wipe out revenue. The Fiscal Responsibility and Budget Management Act, (FRBM Act) is an act of Indian Parliament to institutionalize financial discipline. Fiscal Responsibility and Budget Management (FRBM) became an Act in The objective of the Act is to ensure inter-generational equity in.

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Impact on deficits FRBM act has been violated more than adhered to since its enactment. For instance, the Xct of Maharashtra has already crossed the deficit of Rs. Once revenue deficit becomes zero the central government should build up surplus amount of revenue which it may utilised for discharging liabilities in excess of assets.

The Comptroller and Auditor General of India had pulled up the government for deferring the targets which it said should have been done through amending the Act. The Finance Minister has to explain the reasons and suggest corrective actions to be taken, in case of breach. The tenth plan fdbm the Planning Commission of India highlighted the need for fiscal discipline at the level of the states. They described the law as wishful thinking and a triumph of hope over experience.

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A revenue surplus of 0. The States have achieved the targets much ahead the prescribed timeline.

FRBM Act 2003

The investment needs are independently determined by the structural developments in the economy, its stock of capital and its planned growth profile. If the deficit is in the form of capital expenditure it would contribute to future growth. High fiscal deficit was the one major macroeconomic problem faced by Indian economy around Vijay Kelkar for drawing up the medium term framework for fiscal policies to achieve the FRBM targets.


Lower fiscal deficit lead to higher growth. However due to the international crisisthe deadlines for the implementation of the targets in the act was initially postponed.

Fiscal Responsibility and Budget Management Act, – Wikipedia

There is also a suggestion that fiscal expansion or contraction should be aligned with credit contraction or expansion respectively, in the economy. However, due to the international financial crisisthe deadlines for the implementation of the targets in the act was initially postponed and subsequently suspended in A two-tire rate structure of 20 percent tax for income of Rs.

However, it should be noted that strict adherence to the path of fiscal consolidation during pre crisis period created enough fiscal space for pursuing counter cyclical fiscal policy. Impact on credit growth Further the FRBM Act ignores the possible inverse link between fiscal deficit fiscal expansion and bank credit monetary expansion.

Too often, attention gets focused only on the expenditure side of the identity to the neglect of the revenue side. Will be displayed Will not be displayed Will be displayed. Committee submitted its report in January The Government can move away from the path of fiscal consolidation only in case of natural calamity, national security and other exceptional grounds which Central Government may specify.

Effective revenue deficit has now become a new fiscal parameter. NIFTY 50 10, The objective of the Act is to ensure inter-generational equity in fiscal management, long run macroeconomic stability, better coordination between fiscal and monetary policy, and transparency in fiscal operation of the Government.


Remember me on this computer. All the states have implemented their own FRLs.

Yashwant Sinha in December, The Fiscal Responsibility and Budget Management Act, FRBMA is an Act of the Parliament of India to institutionalize financial discipline, reduce India’s fiscal deficit, improve macroeconomic management and the overall management of the public funds by moving towards a balanced budget and strengthen fiscal prudence. As long as we restrict borrowing to investment needs it does not seem logical to say why a nation should borrow only 3 per cent of its GDP to make investments.

Some others have drawn parallel to this act’s international counterparts like the Gramm- Rudman-Hollings Act US and the Growth and Stability Pact EU to point out the futility of enacting laws whose relevance and implementation over time is bound to decrease. The increase in public investment helps to increase the level of effective demand and increases private investment in the economy. Since the act was primarily for the management of the governments’ behaviour, it provided for certain documents to be tabled in the parliament annually with regards to the country’s fiscal policy.

The power to remove difficulties was also entrusted to the Central Government. Indian economy faced with the problem of large fiscal deficit and its monetization spilled over to external sector in the late s and early s.

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