Prime Minister of India in Kannada for UPSC | ಭಾರತದ ಪ್ರಧಾನ ಮಂತ್ರಿ

 

FRBM Act (Fiscal Responsibility and Budget Management Act) 2003-04:

The FRBM Act, enacted in 2003 and effective from 2004, aimed to promote financial discipline and support economic stability in India. It marked a shift from yearly budgeting to a long-term fiscal planning approach. The main objectives and rules under the Act include:

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Key Goals

1. Reducing Revenue Deficit:

   • Aim: Decrease revenue deficit by 0.5% of GDP yearly (starting from 2004-05).
   • Target: Eliminate revenue deficit entirely by March 31, 2008.

2. Reducing Fiscal Deficit:

   • Aim: Reduce fiscal deficit by 0.3% of GDP yearly (starting from 2004-05).
   • Target: Bring fiscal deficit to 3% of GDP by March 2008.

3. Exceptions:

   • Government could deviate from these goals only in special cases like natural disasters, national security crises, or exceptional situations.

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Borrowing Rules

• The government is not allowed to borrow from the Reserve Bank of India (RBI) for short-term needs, except under the Ways and Means Advances (WMA) route.

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Policy Statements to Parliament

Each financial year, the government must present three key financial policy documents:

1. Medium-Term Financial Policy Statement: Outlines fiscal planning for the next few years.
2. Fiscal Policy Strategy Statement: Explains the government’s fiscal strategies.
3. Macroeconomic Framework Statement: Provides an overview of the economy, including growth, inflation, and other key indicators.

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Key Fiscal Indicators

The Act requires projections for the following indicators in the Medium-Term Financial Policy Statement:

1. Revenue Deficit as a percentage of GDP.
2. Fiscal Deficit as a percentage of GDP.
3. Tax Revenue as a percentage of GDP.
4. Total Outstanding Liabilities as a percentage of GDP.

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Purpose of the Act

The FRBM Act was designed to ensure responsible fiscal policies, reduce government debt, and strengthen India's economic foundation. It also promotes transparency and accountability in public finances.

FRBM Act 2.0 (2012-13) - Simplified Explanation

In 2012-13, the FRBM Act was amended with some important changes:

1. Expenditure Reforms:

   • The amendment introduced a new way to look at the revenue deficit.

2. Effective Revenue Deficit:

   • It introduced the concept of Effective Revenue Deficit, which excludes grants given to states for building infrastructure (capital assets) from the regular revenue deficit calculation.

3. Goal:

   • The aim of the amendment is to eliminate the Effective Revenue Deficit over time.

In simpler terms, the amendment made the government's spending and deficit planning more focused by removing certain types of spending (capital grants) from the regular deficit calculations.

Let me explain it more simply:

In the original revenue deficit calculation, all types of government spending (including grants to states) were considered. However, some of this spending, like grants given to states for building things like roads, schools, or hospitals (known as capital assets), is an investment that helps grow the economy in the long term.

So, in the Effective Revenue Deficit calculation, the government decided to exclude these types of grants because they are meant for future growth, not just regular spending. This helps to give a clearer picture of the government’s actual ongoing financial health, focusing on how much it is spending on regular operations, rather than long-term investments.

In short, the change was made to show a more accurate measure of the government's current financial condition by removing long-term investment spending.

N.K. Singh Committee (2016-2017)

Here are the key recommendations of the N.K. Singh Committee (2016-2017) in single-line points:

1. Set fiscal deficit target of 2.5% of GDP by 2022-23.
2. Set revenue deficit target of 0.8% of GDP by 2022-23.
3. Set debt-to-GDP ratio of 60% for the government (40% for the central govt., 20% for state govts.) by 2022-23.
4. Introduce a glide path for gradual progress towards fiscal targets.
5. Replace the FRBM Act with a new Debt and Fiscal Responsibility Act and create a Fiscal Council.
6. Escape clause allows deviation from fiscal targets in cases like national security, war, natural disasters, or major reforms, with a maximum deviation of 0.5%.
7. Escape clause can also be triggered if economic growth falls 3% below the average of the past four quarters.
8. Buoyancy clause states fiscal deficit should fall 0.5% below the target if real output grows 3% faster than the average of the last four quarters.

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