Debt to GDP ratio: The review committee advocated for a Debt to GDP ratio of 60% to be targeted with a 40% limit for the centre and 20% limit for the states. The rule specifies reduction of fiscal deficit to 3% of the GDP by 2008-09 with annual reduction target of 0.3% of GDP per year by the Central government. What is FRBM Act? Articles similar to FRBM Act are linked in the table below: Your email address will not be published. Additionally, the act was expected to give the necessary flexibility to Reserve Bank of India (RBI) for managing inflation in India. Implementing the act, the government had managed to cut the fiscal deficit to 2.7% of GDP and revenue deficit to 1.1% of GDP in 2007–08. The FRBM Act, enacted in 2003 by Parliament aims to reduce India’s fiscal deficit and improve macroeconomic management. Achieving FRBM targets thus ensures inter-generation equity by reducing the debt burden of the future generation. A minimum annual reduction – 0.3% of GDP. What is the significance of FRBM with respect to Indian economy? This ratio was 70% in 2017. What is Fiscal responsibility and Budget Management (FRBM) Act? It is considered as one of the major legal steps taken in the direction of fiscal consolidation in India. to aim for fiscal stability for India in the long run. I bought it and found it to be the best available online." The intention of the Fiscal Responsibility and Budget Management Act was to bring –. FRBM act UPSC On 1 February 2017, the finance minister offered the union budget in the parliament revealing that a committee would be started for the reconsideration of application of the Fiscal Responsibility and Budget Management Act (FRBM Act). This resulted in interest payments becoming the largest expenditure item of the government. Required fields are marked *, "Working 24*7 in the police for the last 5 years and been out of touch with the preparation, I took the guidance from your website, especially the ClearIAS prelims test series. The requirement of ‘Medium Term Expenditure Framework Statement’ was also added via amendment in FRBMA. What exactly is FRBM? The Fiscal Responsibility and Budget Management (FRBM) Act was enacted in 2003 which set targets for the government to reduce fiscal deficits. As per the latest data, the following changes have been incorporated : Read the summary of Union Budget 2020 for an upcoming exam in the linked article. The FRBM Act seeks to achieve long-term macroeconomic stability, while generating budget surpluses, prudential debt management, limiting borrowings to cut down deficits and debt, greater transparency, removal of fiscal impediments and providing a medium-term framework for budgetary implementation. The Fiscal Responsibility and Budget Management Bill (FRBM Bill) was introduced in India by the then Finance Minister of India, Mr.Yashwant Sinha in December 2000. A new concept called Effective Revenue Deficit (E.R.D) was also introduced. Controlling fiscal deficit, thus meant, controlling the government’s wasteful expenditure. However, the Comptroller and Auditor General of India (CAG) pulled up the government for deferring the targets which it said should have been done through amending the Act. Under the Fiscal Responsibility and Budget Management Act (FRBMA) 2003, both the Centre and States were supposed to wipe out revenue deficit and cut fiscal deficit to 3% of GDP by 2008-09, thus bringing much needed fiscal discipline. Though the Act aims to achieve deficit reductions prima facie, an important objective is to achieve inter-generational equity in fiscal management. The targets were breached time and again. 3. 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