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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Subsequently, the Terms of Reference were enlarged to seek the committee’s views on certain recommendations of the Fourteenth Finance Commission and the Expenditure Management Commission. The committee recommended that the government should target a fiscal deficit of 3 per cent of the GDP in years up to March 31, cut it to 2. There is also a suggestion that fiscal expansion or contraction should be aligned with credit contraction or expansion respectively, in the economy.

The crisis period called for increase in expenditure by the government to boost demand in the economy.

What is FRBM Act? Why is FRBM Act important in Budget? | The Economic Times

The increase in public trbm helps to increase the level of effective demand and increases private investment in the economy. Help Center Find new research papers in: However, due to the global financial crisis, this was suspended and the fiscal consolidation as mandated in the FRBM Act was put on hold in It required the Finance Minister of India to only conduct quarterly reviews of the receipts and expenditures of the Government and place these reports before the Parliament.

Similarly, revenue deficit has to be reduced by 0. After a good start in the early nineties, the fiscal consolidation faltered after The government should reduce Gross fiscal deficit by an amount equivalent to 3. Yashwant Sinha [1] in December The Act further required the government to develop measures to promote fiscal transparency and reduce secrecy in the preparation trbm the Government financial documents including the Union Budget.

But, deficits of state governments are as much or even a greater problem. Views Read View source View history. Further, the Central Government may entrust the Comptroller and Auditor-General of India to review periodically as required, the compliance of the provisions of FRBM Act and such reviews shall be laid on the table of both Houses of Parliament.


After receiving the assent of the President, it became an Act in August The politics of sound finance in a globalised financial environment is well understood.

Vijay Kelkar for drawing up the medium term framework for fiscal policies to achieve the FRBM targets. The finance minister shall also make statement in both houses of parliament if there is any deviations in meeting the obligations of the central government.

Too often, attention gets focused only on the expenditure side of the identity to the neglect of the revenue side. Controller of Publications, Government of India Press.

Chidambaramcriticised the act and its rules as adverse since it might require the government to cut back on social expenditure necessary to create productive assets and general upliftment of rural poor of India. Government of India will not include the debt taken over by the States as per the above scheme in the calculation of fiscal deficit of respective States in the financial years and India portal Economics portal Government of India portal.

October 5, at However, investment in social sector such as health, education, etc is very vital for the economic development of the nation.

Fiscal Responsibility and Budget Management Act, 2003

A revenue surplus of 0. If a State is not able to fully utilise its sanctioned fiscal deficit of 3 per cent of GSDP in any particular year during the to of FFC award period, it will have the option of availing this un-utilised fiscal deficit amount calculated in rupees only in the following year but within FFC award period.

The central government should minimize as far as possible secrecy in preparation of annual budget. The fiscal deficit started rising after The task force stated that under the reforms measures recommended by it, tax GDP ratio of the central government should be raised from 9. Civil courts of the country had no jurisdiction for enforcement of this act or decisions made therein. However, due to the international financial crisisthe deadlines for the implementation of the targets in the act was initially postponed and subsequently suspended in Parallels were drawn to the US experience of enacting debt-ceilings and how lawmakers have traditionally been able to amend such laws to their own political advantage.


If deviations are substantial then the Finance Minister will declare the remedial measures which the central government proposes to take in future period of time. An All-India goods and service-tax GST on the basis of a “grand bargain” with States, whereby States will have the concurrent powers to tax service, subject to certain principles that will help foster a national common market. The effective revenue deficit which had to be eliminated by March will now need to be eliminated only after 3 years i.

FRBM Act 2003

Consequently, Economic reforms were introduced in and fiscal consolidation emerged as one of the key areas of reforms. Tarapore is quick to highlight the use of creative accounting to misrepresent numbers in the past. Vide the Finance Actthe target dates for achieving the prescribed rates of effective deficit and fiscal deficit were further extended. The FRBM Act has the potential of ensuring macro-economic stability provided it is revised to needs of Indian economy.

One of the major ommission of amended FRBM Bill or FRBM Act was complete absence of any target for time bound minimum improvement in areas of power generation, transport, etc. Taking into account the recommendations of the Standing Committee, a revised Bill was introduced in April An All-India goods and service-tax GST on the basis of a “grand bargain” with States, whereby States will have the concurrent powers to tax service, subject to certain principles that will help foster a national common market.

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