The FRBM Act 2003 was introduced to ensure fiscal discipline, reduce fiscal deficit and improve macroeconomic stability. It sets targets for responsible government borrowing and budget management.
Which one of the following is the primary objective of the Fiscal Responsibility and Budget Management Act (FRBM Act)?
Correct Answer:
(C) It aims to reduce public debt and promote fiscal sustainability.
The primary objective of the Fiscal Responsibility and Budget Management Act (FRBM Act) is to reduce public debt and promote fiscal sustainability.
The FRBM Act was enacted in 2003 with the aim of institutionalizing financial discipline and reducing India’s high public debt levels. It sets targets for the government to reduce its fiscal deficit, revenue deficit, and public debt over time.
Ques: 2
With reference to the Fiscal Responsibility and Budget Management (FRBM) Act 2003, consider the following statements:
1. The FRBM Act requires the government to publish a medium-term fiscal policy statement (MTFP) every year.
2. The FRBM Act sets a target for the central government’s fiscal deficit of 2% of GDP.
3. The FRBM Act is not a flexible and adaptable piece of legislation.
How many of the above statements are correct?
Correct Answer:
(B) Only two
Statements 1 and 3 are correct. The Fiscal Responsibility and Budget Management (FRBM) Act requires the government to publish a medium-term fiscal policy statement (MTFP) every year. The MTFP outlines the government’s fiscal plans for the next three years. It includes projections for the fiscal deficit, debt-to-GDP ratio, and other key fiscal indicators.
The MTFP is an important tool for ensuring transparency and accountability in the government’s fiscal management. It allows the public to see how the government plans to manage its finances, and it provides a benchmark for assessing the government’s performance.
The MTFP is also used to guide the government’s budget-making process. The government’s annual budget should be consistent with the targets set in the MTFP.
The FRBM Act is not a flexible and adaptable piece of legislation. It sets rigid targets for the fiscal deficit and debt-to-GDP ratio, which makes it difficult for the government to respond to economic shocks.
For example, during the COVID-19 pandemic, the government needed to increase spending on healthcare and economic relief. However, the FRBM Act’s rigid targets made it difficult for the government to do so. As a result, the government had to borrow more money, which increased the debt-to-GDP ratio.
Statement 2 is incorrect. The FRBM Act mandates the central government to eliminate revenue deficit and reduce fiscal deficit to 3% of GDP by March 31, 2021. The FRBM Act also requires the government to limit the debt of the central government to 40% of the GDP by 2024-25.
Ques: 3
FRBM Act aimed for:
Eliminating both revenue deficit and fiscal deficit
Giving flexibility to RBI for inflation management
Which of the statements given above is/are correct?
Correct Answer:
(B) 2 only
FRBM act had the objective of ensuring prudence in fiscal management by eliminating revenue deficit, REDUCING (and not eliminating) fiscal deficit, establishing improved debt management and improving transparency in a medium term framework with quantitative targets to be adhered by the state with regard to deficit measures and debt management. The act was also expected to give necessary flexibility to RBI for managing inflation in India.
Ques: 4
FRBM Review Committee headed by:
Correct Answer:
(A) Nand Kishore Singh
The FRBM Review Committee was formed under the chairmanship of a former Revenue and Expenditure Secretary Nand Kishore Singh. The other members of the committee included former RBI Governor Urjit Patel, former Finance Secretary Arvind Subramanian, among others.
Ques: 5
Consider the following terms related to FRBM act:
A gradual reduction in the fiscal deficit over time is known as Fiscal Glide.
A reckless extravagance or wasteful expenditure of public money is known as fiscal slippage.
Which of the statements given above is/are correct?
Correct Answer:
(A) 1 only
A gradual reduction in the fiscal deficit over time is known as Fiscal Glide.
Fiscal profligacy is reckless extravagance or wasteful expenditure of public money.
The failure to meet the government’s fiscal deficit target is known as fiscal slippage.