What is Fiscal Responsibility and Budget Management Act (FRBM Act)?

July 16, 2024

The Fiscal Responsibility and Budget Management (FRBM) Act, passed in 2003, was meant to make the Indian government more responsible with its money and cut down on its debt. Its importance has been emphasized during economic problems, especially during the COVID-19 pandemic, when the FRBM Act’s usual fiscal goals were loosened to allow for more government spending.

Origin and Implementation

The FRBM Act was first suggested by Yashwant Sinha, who was Finance Minister at the time, in 2000. It became law in 2003. It was officially put into place on July 5, 2004, and its goal was to set up a framework for fiscal control to protect macroeconomic stability and long-term economic growth.

Goals and Objectives of the FRBM Act

The Act’s goals are to:

Keep the budget stable.
Promote transparency in government financial operations.
Give the Reserve Bank of India more practical freedom to control inflation.
One of its long-term goals is to ensure the financial load is shared fairly.

Key Features of the FRBM Act

The FRBM Act mandates the presentation of specific documents with the Union Budget:

Medium-term fiscal policy statement.
Macroeconomic framework statement.
Fiscal policy strategy statement.

There is a clear picture of the government’s finances in these papers because they show predictions for important fiscal indicators like revenue and fiscal deficits. The Act lets the government deviate from its fiscal goals in certain situations, like natural disasters or major threats to national security, which gives fiscal policy some freedom.

Challenges and Reforms

The FRBM Act has a very detailed structure, but it has been hard to put into practice, so it has been changed many times over the years. In 2016, the NK Singh Committee looked over the Act and suggested a number of changes, such as making paying down debt the main budget goal.

Making a separate economic council to keep an eye on things.
Making it clear what kinds of deviations from economic goals are okay.
Setting strict rules for how the government can borrow money.

The goal of these suggestions is to make the FRBM Act better at promoting long-term economic growth and security. The FRBBM Act is still very important for India’s economic management because it enforces structured fiscal control and openness. This is especially true now that the global economy is unstable.

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