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    FRBM Act

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    Spideycod
    The Fiscal Responsibility and Budget Management (FRBM) Act was passed in 2003 with the objectives of institutionalizing fiscal discipline, reducing fiscal and revenue deficits, and improving macroeconomic management. The law aims to promote long-term fiscal stability in India through transparent fiscal management and equitable distribution of debt. It gives flexibility to the Reserve Bank of India to undertake monetary policy to tackle inflation. While the FRBM Act targets reducing fiscal indicators like revenue and fiscal deficits, it provides exceptions for natural calamities or threats to national security. The implementation of annual deficit targets was paused during the global financial crisis but the act emphasizes sustained fiscal consolidation for economic growth and development.

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    FRBM Act

    Uploaded by

    Spideycod
    93 views2 pages
    The Fiscal Responsibility and Budget Management (FRBM) Act was passed in 2003 with the objectives of institutionalizing fiscal discipline, reducing fiscal and revenue deficits, and improving macroeconomic management. The law aims to promote long-term fiscal stability in India through transparent fiscal management and equitable distribution of debt. It gives flexibility to the Reserve Bank of India to undertake monetary policy to tackle inflation. While the FRBM Act targets reducing fiscal indicators like revenue and fiscal deficits, it provides exceptions for natural calamities or threats to national security. The implementation of annual deficit targets was paused during the global financial crisis but the act emphasizes sustained fiscal consolidation for economic growth and development.

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    FRBM

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    The Fiscal Responsibility and Budget Management (FRBM) Act was passed in 2003 with the objectives of institutionalizing fiscal discipline, reducing fiscal and revenue deficits, and improving macroeconomic management. The law aims to promote long-term fiscal stability in India through transparent fiscal management and equitable distribution of debt. It gives flexibility to the Reserve Bank of India to undertake monetary policy to tackle inflation. While the FRBM Act targets reducing fiscal indicators like revenue and fiscal deficits, it provides exceptions for natural calamities or threats to national security. The implementation of annual deficit targets was paused during the global financial crisis but the act emphasizes sustained fiscal consolidation for economic growth and development.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    93 views2 pages

    FRBM Act

    Uploaded by

    Spideycod
    The Fiscal Responsibility and Budget Management (FRBM) Act was passed in 2003 with the objectives of institutionalizing fiscal discipline, reducing fiscal and revenue deficits, and improving macroeconomic management. The law aims to promote long-term fiscal stability in India through transparent fiscal management and equitable distribution of debt. It gives flexibility to the Reserve Bank of India to undertake monetary policy to tackle inflation. While the FRBM Act targets reducing fiscal indicators like revenue and fiscal deficits, it provides exceptions for natural calamities or threats to national security. The implementation of annual deficit targets was paused during the global financial crisis but the act emphasizes sustained fiscal consolidation for economic growth and development.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    What is Fiscal Responsibilityand Budget Management Act?

    The Fiscal Responsibility andBudget Management (FRBM) Actwas legislatedby the


    Parliamentin the year 2003.
    Its objectives can be identified as:
    Toinstitutionalise fiscal discipline;
    Reduce Fiscal Deficit;
    ImproveMacroeconomicManagement.
    Thelaw aims at promotingFiscal Stability for the country onalong-term basis.
    It emphasisesa Transparent Fiscal Management Systemand a more equitable
    distributionof debts over the years.
    Thislaw also gives flexibility tothe Reserve Bank of India toundertake monetary
    policy totackleinflation and take corrective measures in order to give an impetus to
    the economic environment.
    As the Government needs resources for funding various kinds of developmental schemes
    androutine expenditures. Resources areraised through taxes and borrowing. The
    governmentcan raise funds by borrowing fromthe Reserve Bank of India, financial
    institutions or from thepublic by floating bonds.
    Fiscal deficit
    It is the Total Expenditure minusthe Revenue Receipt, Loan Recoveriesand Receipts from
    Disinvestment etc. It is a measure of the government borrowing ina year.
    However, uncontrolled Fiscal Deficit is harmful not only for thehealth of economy but also
    for the Growthof the economic indicatorsand finally the development prospects in the road
    towards Inclusive Growth.
    FRBM Act wasnotified in 2004 in response tothe need felt to curb broadeningFiscal
    Deficit.
    TheFRBM rulesspecify annual reduction targetsfor fiscal indicators.
    Originally, theact envisaged Revenue Deficit tobe reduced to nil in five years
    beginning2004-05.
    Fiscal deficit wasrequired to be reduced to3 percent of GDP by 2008-09.
    The Act also provides exception tothe government in case of Natural Calamity and
    whenever there is a threat to National Security.
    The implantation of the act was put on hold in 2007-08 due to Global Financial Crisis and the
    aggravating demand forFiscal Stimulus.
    There was a need for increasedgovernment expenditure tocreate demand to fight off the
    financial downturn and hence the government moved away from thepath of Fiscal
    Consolidation for thisperiod.
    This law also prohibits borrowingby government fromthe Reserve Bank of India and
    purchaseof primary issues of central government securities after2006.
    The Act asked the Central government to lay in Parliament threestatements in one
    financialyear about the fiscal policy.
    To enforcefiscal discipline at the statelevel, the Twelfth financecommission provided
    for incentives tostates through conditional debt restructuringand interest raterelief.
    In 2012, the FRBM Act was amended andit was decided that the FRBMAct would target
    Effective RevenueDeficit in place of Revenue Deficit.
    Effective Revenue Deficitexcludes Capital Expenditure from Revenue Deficitand
    thus provides space to the government to spend on formationof Capital Assets.
    The critics of this Act usually point of out the demerits that it would put a curb on the
    governments social sector spending, butno one can deny thefact that there is a rising need
    for Fiscal Sustainabilityin order to put the economic indicators back on the path of Growth as
    well as Development.
    Ankur Sachan

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