Fiscal Responsibility and Budget Management (FRBM) Act

Fiscal Responsibility and Budget Management (FRBM) Act

  • Fiscal Responsibility and Budget Management (FRBM) became an Act in 2003.
  • The objective of the Act is to ensure inter-generational equity in fiscal management, long run macroeconomic stability, better coordination between fiscal and monetary policy, and transparency in fiscal operation of the Government.
  • FRBM Act provides a legal institutional framework for fiscal consolidation.
  • The FRBM 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.
  • Similarly, revenue deficit has to be reduced by 0.5% of the GDP per year with complete elimination to be achieved by 2008-09. It is the responsibility of the government to adhere to these targets.
  • The Act also requires the government to lay before the parliament three policy statements in each financial year namely Medium Term Fiscal Policy Statement; Fiscal Policy Strategy Statement and Macroeconomic Framework Policy Statement.

Amendments to FRBM Act

  • Through Finance Act 2012, amendments were made to the FRBM Act, 2003 through which it was decided that in addition to the existing three documents, Central Government shall lay another document – the Medium Term Expenditure Framework Statement (MTEF) – before both Houses of Parliament in the Session.