Fiscal Responsibility and Budget Management (FRBM) Act: States demand access to revenue

Fiscal Responsibility and Budget Management (FRBM) Act: States demand access to revenue

Part of: GS Prelims and GS-III – Economy

In News:

• Recently, majority of the Chief Ministers demanded increasing the State’s access to revenue under the Fiscal Responsibility and Budget Management (FRBM) Act due to crippling shortage of funds. 

Important value additions: 

Fiscal Responsibility and Budget Management (FRBM) Act

• The FRBM Act, enacted in 2003 by Parliament aims to reduce India’s fiscal deficit and improve macroeconomic management.
• Since then, every Budget includes a Medium Term Fiscal Policy Statement that specifies the annual revenue and fiscal deficit goals over a three-year horizon.
• The present target is of reducing the fiscal deficit to 3.1% of GDP by March 2023
• The Act allows the government to exceed the annual fiscal deficit target under extra-ordinary situations like national security, national calamity.
• Due to COVID-19 pandemic, the current circumstances would be apt for suspending both the Centre’s and States’ fiscal deficit targets.
• This would allow both the Union government and States to undertake the much-needed increases in expenditure to meet the extraordinary circumstances.

Fiscal deficit

• It is a shortfall in a government’s income compared with its spending. 

• The government that has a fiscal deficit is spending beyond its means.