Explanation
The Fiscal Responsibility and Budget Management Act (FRBMA), 2003, is a legislation enacted by the Government of India to institutionalize fiscal discipline, reduce fiscal deficits, and improve macroeconomic management. The Act specifically targets both fiscal deficit and revenue deficit:
Fiscal deficit is the difference between the government’s total expenditure and its total revenue (excluding borrowings). The FRBMA aims to reduce the fiscal deficit to a manageable level, typically around 3% of GDP, to ensure long-term fiscal sustainability. Revenue deficit is the difference between the government’s revenue expenditure and its revenue receipts. The FRBMA aims to eliminate the revenue deficit, as it indicates that the government is borrowing to meet its day-to-day expenses, which is not sustainable in the long run. Other provisions of FRBMA:
The Act mandates the government to lay before Parliament Medium-Term Fiscal Policy Statements, Fiscal Policy Strategy Statements, and Macroeconomic Framework Statements. It sets targets for reducing fiscal and revenue deficits over a specified period. It prohibits the government from borrowing from the Reserve Bank of India (RBI) after 2006, except under exceptional circumstances.