Explanation –

Statements 1 and 3 are correct. The Fiscal Responsibility and Budget Management (FRBM) Act requires the government to publish a medium-term fiscal policy statement (MTFP) every year. The MTFP outlines the government’s fiscal plans for the next three years. It includes projections for the fiscal deficit, debt-to-GDP ratio, and other key fiscal indicators.

The MTFP is an important tool for ensuring transparency and accountability in the government’s fiscal management. It allows the public to see how the government plans to manage its finances, and it provides a benchmark for assessing the government’s performance.

The MTFP is also used to guide the government’s budget-making process. The government’s annual budget should be consistent with the targets set in the MTFP.

The FRBM Act is not a flexible and adaptable piece of legislation. It sets rigid targets for the fiscal deficit and debt-to-GDP ratio, which makes it difficult for the government to respond to economic shocks.

For example, during the COVID-19 pandemic, the government needed to increase spending on healthcare and economic relief. However, the FRBM Act’s rigid targets made it difficult for the government to do so. As a result, the government had to borrow more money, which increased the debt-to-GDP ratio.

Statement 2 is incorrect. The FRBM Act mandates the central government to eliminate revenue deficit and reduce fiscal deficit to 3% of GDP by March 31, 2021. The FRBM Act also requires the government to limit the debt of the central government to 40% of the GDP by 2024-25.

Source: ForumIAS