FISCAL RESPONSIBILITY AND BUDGET MANAGEMENT(FRBM) ACT,2013

UPSC GS MAINS IMPORTANT QUESTIONS

What were the reasons for the introduction of Fiscal Responsibility and Budget Management(FRBM) act,2003? Discuss critically its salient features and their effectiveness.


The word fiscal resembles the word financial, which makes sense because both involve money.

FRBM bill was introduced in 2000 by Yashwant Sinha and enacted as a act in 2003, with the objective that government becomes responsible, accountable and transparent in its fiscal operations. The target was setup to bring down revenue deficit to zero by 5 years by 2008-09 and fiscal deficit to not more than 3%. However due to global financial crisis in 2007, the prices of oil and fertilizers shot up, the subsidy bill also shot up and so the government had to raise money from market by issuing oil and fertilizer bond. The government also issued a fiscal stimulus package to revive the economy and thus, further increasing the India's fiscal deficit upto 6.5%.

Due to such large deficit, India missed its FRBM targets and so, the 13th finance commission rewrote the whole plan for fiscal consolidation. 

In the wake of this ,govt. introduced the concept of "Effective Revenue Deficit" in FRBM 2013 Amendment Act. The, amended FRBM act 2013, had the following salient features:

1.It eliminated review deficit and introduced effective revenue deficit concept in the Act.
2.It targeted the bringing down of effective revenue deficit to zero by 2013.
3.It targeted bringing down of fiscal deficits to 3% by 2017.

Effective Revenue Deficit= Revenue Deficit Grants for creation of capital assets.

Thus, concept of effective revenue deficit is nothing but a jugglery to rewrite revenue expenditure as capital expenditure. The FRBM act can be amended simply by gazette notification, thus govt. can easily shift the target further thereby reducing the effectiveness of the act. It lacks transparency monitoring and compliance by the govt; N.K Singh committee has recommended to shift focus from fiscal deficit to outstanding debt; and introduction of autonomous body to monitor fiscal situation regularly.





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