What is Fiscal Responsibility and Budget Management (FRBM) Act and its guidelines ?

Here’s a comprehensive timeline and current status of the Fiscal Responsibility and Budget Management (FRBM) Act and its guidelines, from inception to the latest updates:

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1. Origin and Purpose

• Proposed: 2000 by Finance Minister Yashwant Sinha.
• Enacted: 2003; implemented from July 2004.
• Objective:
• Ensure fiscal discipline and macro-economic stability.
• Reduce fiscal deficit, revenue deficit, and public debt.
• Enhance transparency in fiscal operations.
• Initial Targets:
• Eliminate revenue deficit by 2008–09.
• Reduce fiscal deficit to 3% of GDP by 2008–09.

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2. Key Features of FRBM Act

• Mandates presentation of:
• Medium-Term Fiscal Policy Statement
• Macroeconomic Framework Statement
• Fiscal Policy Strategy Statement with Union Budget.
• Prohibits borrowing from RBI except under exceptional circumstances.
• Introduced escape clause for deviations during:
• National security threats
• Natural calamities
• Structural reforms
• Severe economic downturns

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3. Amendments and Evolution

2004–2008

• Original targets missed due to global financial crisis (2008).
• Government invoked escape clause and suspended targets.

2012 Amendment

• Introduced effective revenue deficit concept.
• Revised targets for fiscal consolidation.

2015 Amendment

• Extended timeline for achieving fiscal deficit of 3% of GDP.

2016–2017: N.K. Singh Committee

• Recommended:
• Debt-to-GDP ratio as primary anchor.
• General Government Debt ≤ 60% of GDP by 2024–25.
• Central Government Debt ≤ 40% of GDP by 2024–25.
• Fiscal deficit range: 2.5%–3% of GDP.
• Escape clause allowing deviation up to 0.5% of GDP in exceptional cases.

2018 Amendment

• Incorporated debt targets and escape clause formally.
• Added cap on guarantees: ≤ 0.5% of GDP annually until FY 2024–25.

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4. Impact of COVID-19 (2020–21)

• Fiscal deficit surged to 9.5% of GDP due to pandemic spending.
• Government announced new roadmap:
• Reduce fiscal deficit to below 4.5% of GDP by FY 2025–26.
• Debt-to-GDP ratio peaked at 61.38% in FY 2020–21.

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5. Current Targets and Roadmap

• Fiscal Deficit:
• Target: < 4.5% of GDP by FY 2025–26 (current ~5.8% in RE 2023–24).
• Debt Targets:
• General Government Debt: ≤ 60% of GDP by FY 2024–25.
• Central Government Debt: ≤ 40% of GDP by FY 2024–25 (currently ~57% as of March 2024).
• Guarantees: ≤ 0.5% of GDP annually until FY 2024–25.

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6. Compliance and CAG Observations (2025 Reports)

• Central Government Debt:
• Declined from 61.38% (2020–21) to 57% (2023–24).
• General Government Debt:
• ~81% of GDP in 2022–23 (above target).
• Interest Payments:
• Consumed ~35% of revenue receipts in 2022–23.
• Disinvestment Receipts:
• Lower than budget estimates.
• Tax Arrears:
• ₹21.3 lakh crore unrealized in 2022–23 (70% of gross tax revenue).
• Debt Sustainability:
• Positive trend; debt accumulation slower than GDP growth. [cag.gov.in]

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7. Strategic Shifts

• Moving from rigid deficit targets to flexible deficit management:
• Counter-cyclical approach.
• Focus on capital expenditure and growth.
• Post-2026: Emphasis on annual reduction in debt-to-GDP ratio rather than fixed fiscal deficit caps.

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8. Why FRBM Still Matters

• Central to budget planning, investor confidence, and credit ratings.
• Ensures inter-generational equity and long-term sustainability.
• Provides a legal framework for fiscal transparency and accountability.

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✅ Summary Table of Key Milestones

Year	Event	Target/Change
2003	FRBM Act enacted	FD ≤ 3%, RD eliminated by 2008–09
2012	Amendment	Effective revenue deficit introduced
2015	Amendment	Extended timelines
2017	NK Singh Committee	Debt anchor, escape clause
2018	Amendment	Debt targets, guarantee cap
2020	COVID-19	FD surged to 9.5%, roadmap reset
2025	Current	FD < 4.5% by FY26, debt targets by FY25