What is Fiscal Responsibility and Budget Management Act, 2003 

(FRBMA)?
It is an Act of the Parliament of India to institutionalize financial discipline,
reduce India's fiscal deficit, improve macroeconomic management and the
overall management of the public funds by moving towards a balanced
budget and strengthen fiscal prudence. The main purpose was to eliminate
revenue deficit of the country (building revenue surplus thereafter) and bring
down the fiscal deficit. N. K. Singh is currently the Chairman of the review
committee for Fiscal Responsibility and Budget Management Act, 2003, under
the Ministry of Finance (India), Government of India.

When was the FRBM Act Enacted?

The Fiscal Responsibility and Budget Management Bill (FRBM Bill) was
introduced in India by the then Finance Minister of India, Mr.Yashwant Sinha in
December 2000. This bill was approved by the Cabinet of Ministers of the
Union Government of India in February, 2003 and following the
due enactment process of Parliament, it received the assent of the President of
India on 26 August 2003. Subsequently, it became effective on 5 July 2004. This
would serve as the day of commencement of this Act.
1. The bill highlighted the terrible state of government finances in India
both at the Union and the state levels under the statement of objects
and reasons.
2.  It also sought to introduce the fundamentals of fiscal discipline at the
various levels of the government.

What was the main objective of the Bill?

The main objectives of the act were:
1. To introduce transparent fiscal management systems in the country
2. To introduce a more equitable and manageable distribution of the
country's debts over the years
3. To aim for fiscal stability for India in the long run.
Additionally, the act was expected to give necessary flexibility to Reserve Bank
of India for managing inflation in India.
What are the documents tailored with regards to country’s Fiscal Policy?
This included the following along with the Annual Financial Statement
and demands for grants:

1. Medium-term Fiscal Policy Statement: This report was to present a

three-year rolling target for the fiscal indicators with any assumptions, if
applicable. This statement was to further include an assessment of
sustainability with regards to revenue deficit and the use of capital
receipts of the Government (including market borrowings) for
generating productive assets.
2. Fiscal Policy Strategy Statement : This was a tactical report enumerating
strategies and policies for the upcoming Financial Year including
strategic fiscal priorities, taxation policies, key fiscal measures and an
evaluation of how the proposed policies of the Central Government
conform to the 'Fiscal Management Principles' of this act.
3. Macro-economic Framework Statement: This report was to contain
forecasts enumerating the growth prospects of the country. GDP
growth, revenue balance, gross fiscal balance and external account
balance of the balance of payments were some of the key indicators to
be included in this report.
4. Medium-term Expenditure Framework Statement: This is to set forth a
three-year rolling target for prescribed expenditure indicators with
specification of underlying assumptions and risk involved (vide Section 6
A of the Act amended in 2012).
The Act further required the government to develop measures to
promote fiscal transparency and reduce secrecy in the preparation of the
Government financial documents including the Union Budget.

Act provision for borrowing from Reserve Bank of India:

The Act provided that the Central Government shall not borrow from
the Reserve Bank of India except under exceptional circumstances where there
is temporary shortage of cash in particular financial year. It also laid down rules
to prevent RBI from trading in the primary market for Government securities. It
restricted them to the trading of Government securities in the secondary
market after an April, 2005, barring situations highlighted
in exceptions paragraph.
National security, natural calamity or other exceptional grounds that the
Central Government may specify were cited as reasons for not implementing
the targets for fiscal management principles, prohibition on borrowings from
RBI and fiscal indicators highlighted above, provided they were approved by
both the Houses of the Parliament as soon as possible, once these targets had
been exceeded.

Why the Act is in Focus currently?

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.
Hard-pressed for funds to combat the crisis, the government had in May
increased its market borrowing programme for the current financial year by
more than 50 per cent to Rs 13.1 lakh crore from Rs 7.8 lakh crore budgeted
earlier.
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.
Finance minister Nirmala Sitharaman said that the government will not worry
about missing its budget deficit target as it seeks to spend more to revive the
economy. In her Budget speech last year, Sitharaman had invoked the escape
clause to revise the fiscal deficit target for FY20 to 3.8 per cent and pegged the
target for FY21 at 3.5 per cent.
Prime Minister Narendra Modi expanded support measures to Rs 30 lakh crore
($120 billion), or 15 per cent of the economy, to rescue companies and save jobs
lost due to the coronavirus pandemic, adding to global stimulus that has touched
$12 trillion.
The fiscal deficit had breached the Budget target in July itself as the economy
faced the most stringent lockdown in the first quarter to contain the outbreak of
the coronavirus pandemic.
It had widened to 135 per cent of the full-year's Budget Estimates (BE) at Rs 10.7
lakh crore in the first eight months (April-November) of FY'21. The number is 33
per cent higher than the corresponding period last year.
For states, the gross fiscal deficit for the first half of the year stood at 58.4 per
cent of budgeted amount, significantly higher than the 35-40 per cent observed
in a normal year.
A recent report by the Reserve Bank of India (RBI) noted that the combined gross
fiscal deficit (GFD) of Centre and states stood at 85.9 per cent of the budgeted
estimate in the first half of the year. This is significantly higher than combined
GFD of 70 per cent recorded in the same period last year.