What is FRBM Act?
• The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 sets a target for the government to establish financial discipline in the economy, improve the management of public funds and reduce fiscal deficit.
• It was enacted in 2003. The Act sets target for the government to bring down fiscal deficit.
Some details:
• The FRBM Bill was introduced in the year 2000 by the then finance minister Yashwant Sinha with the aim to introduce transparency in India's fiscal management system.
• As per the requirements of the Act, Centre needs to limit fiscal deficit to 3 per cent of the country's gross domestic product (GDP) by March 31, 2021. While, government's debt should be restricted to 40 per cent of GDP by 2024-25.
• The FRBM Act also allows invoking of an escape clause in situations of calamity and national security. In such situations, the government can deviate from its annual fiscal deficit target. (Fiscal deficit is the negative balance that arises whenever a government spends more money than it receives in the form of taxes and other revenues)
• The pandemic has necessitated taking recourse to the escape clause [section 4(2)] of the FRBM Act, thus allowing an additional fiscal deficit of 0.5 per cent of GDP.
