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Fiscal Responsibility and Budget Management Act (FRBMA) 2003

Fiscal Responsibility and Budget Management Act (FRBMA) 2003

  • At the beginning of the fiscal reforms in 1991, the fiscal imbalance was identified as the root cause or the twin problems of inflation and the difficult balance of payments position. But in the absence of a defined mandate, the fiscal consolidation failed to sustain itself.
  • FRBMA, 2003 which came into effect from July 2004 mainly aimed at medium term management of the fiscal deficit. According to the Act, Revenue deficit was to be reduced by an amount equivalent to at least 0.5% of the GDP at the end of each financial year and eliminated by March 31, 2009.
  • Fiscal deficit was to be reduced by an amount equivalent to at least 0.3% of GDP at the end of each financial year and reduced to no more than 3% of the estimated GDP by financial year ending on March 31, 2009. The 2008-09 Budget marked the terminal year of the achievement of the targets under FRBMA.
  • The government performed satisfactorily in achieving targets particularly related to the Fiscal deficit, till the financial year 2007-08. The fiscal deficit consistently decreased from a high of 4.5% of GDP in 2003-04 to 2.7% of GDP in 2007-08, thus remaining well within the prescribed limit of 3%.
  • The revenue deficit also showed a downward trend from a high of 3.6% of GDP in 2003-04 to 1.1% of GDP in 2007-08. But the values for these deficits in the year 2008-09 have gone beyond the target levels by a very wide margin.                                          Fiscal Responsibility and Budget Management Act (FRBMA) 2003
  • The revised estimates of 2008-09 Budget has put the Fiscal and Revenue deficits at high levels of 6% and 4.4% of GDP respectively. From 2009-10, the Fiscal and Revenue Deficit have been estimated at 6.5% and 4.6% of GDP respectively.
  • The main reasons provided by the Central Government for such alarming deficits are:
  • The twin global shocks — unprecedented increase in the global commodity prices in the first half of the year and the ripple effects of the deepening o the global financial crisis has affected India, This led to conscious fiscal expansion, composed of both tax cuts and expenditure hikes.
  • The deficits has also increased Supplementary Demands for grants on account of farm loan waiver, implementation a he Sixth Pay Commission award, and funding on the projects prioritized in the Eleventh Five Year Plan.                                                        Fiscal Responsibility and Budget Management Act (FRBMA) 2003

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