The FRBM Act is a fiscal sector legislation enacted by the government of India in 2003, aiming to ensure fiscal discipline for the centre by setting targets including reduction of fiscal deficits and elimination of revenue deficit. It is a legal step to ensure fiscal discipline and fiscal consolidation in India. The targets set under the Act was postponed several times in later years though some other goals of the Act including phasing out of government borrowing from the RBI were implemented.
Amendments to the FRBM Act
Amendments to the Act were made after its initial version in 2003. This include revision of the target realisation year and introduction of the concept of effective revenue deficit. In 2012 and 2015, notable amendments were made. As per one provision of the amendment, a “Medium-term Expenditure Framework” statement should be prepared which will set a three-year rolling target for expenditure indicators.
As per the amendments in 2012, the Central Government has to take appropriate measures to reduce the fiscal deficit, revenue deficit and effective revenue deficit to eliminate the effective revenue deficit by the 31st March, 2015 and thereafter build up adequate effective revenue surplus and thereafter as may be prescribed by rules made by the Central Government.
As per Finance Act 2015, the target dates for achieving the prescribed rates of effective deficit and fiscal deficit (3% fiscal deficit) were further extended by 3 years to March 2018. As per the 2017-18 budget, the government has extended the timeline for the achievement of the 3% target to 2018-19.