Sunday, January 7, 2007

Fiscal Responsibility and Budget Management Act

While the Indian economy continues to exhibit strong fundamentals, the fiscal pressures have the potential for impacting stability and inflation expectations. Against this background, let us take a look at the attempts by the Finance Ministry to rein in Fiscal deficits. Must say, I'm impressed!! Keep it going MMS, MSA

  • The FRBM Act, 2003 , which became effective from July 5, 2004 mandates the Central Government to eliminate revenue deficit by March, 2009 and to reduce fiscal deficit to an amount equivalent to 3 per cent of GDP by March,2008.
  • No assumption of additional liabilities (including external debt at current exchange rate) in excess of 9 per cent of GDP for the financial year 2004-05 and progressive reduction of this limit by at least one percentage point of GDP in each subsequent year.
  • No guarantees in excess of 0.5 per cent of GDP in any financial year, beginning with 2004-05.
  • Specifies four fiscal indicators to be projected in the medium term fiscal policy statement. These are, revenue deficit as a percentage of GDP, fiscal deficit as a percentage of GDP, tax revenue as percentage of GDP and total outstanding liabilities as percentage of GDP.
  • For greater transparency in the budgetary process, rules mandate the Central Government to disclose changes, if any, in accounting standards, policies and practices that have a bearing onthe fiscal indicators.
  • The Government is also mandated to submit statements of receivables andguarantees and a statement of assets, at the time of presenting the annual financial statement,latest by Budget 2006-07.
  • The rules prescribe the form for the quarterly review of the trends of receipts and expenditures.The rules mandate the Central Government to take appropriate corrective action in case of revenue and fiscal deficits exceeding 45 per cent of the budget estimates, or total non-debtreceipts falling short of 40 per cent of the budget estimates at the end of first half of the financialyear.

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