PUBLIC

FINANCE.
FISCAL RESPONSIBILITY AND
BUDGET MANAGEMENT ACT

BY-DEEPSHIKA
RAJPUT
(B.COM{ECO}3RDYEAR)
CONTENTS
1. WHAT IS FRBM ACT ?
2. INTRODUCTION TO FRBM ACT
3. ENACTMENT OF FRBM ACT
4. OBJECTIVES OF FRBM
5. FEATURES OF FRBM
6. SIGNIFICANCE OF FRBM
7. TARGETS AND FISCAL INDICATORS AS PER FRBM AC T
8. WHY IT IS DISCUSSED AROUND BUDGET
9. UNION BUDGET KEY HIGHLIGHTS
10. REVIEW OF N.K SINGH COMMITTEE
11. CONCLUSION
WHAT IS FRBM ACT ?
1. The Fiscal Responsibility and Budget
Management Act, 2003 (FRBMA) is an
Act of the Parliament of India to
 institutionalize financial discipline,
 reduce India's fiscal deficit
 overall management of the public funds
by moving towards a balanced budget
 strengthen fiscal prudence.
INTRODUCTION TO FRBM ACT
The Fiscal Responsibility and Budget Management
Act, 2003 (FRBMA) is an act of the Parliamet 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.

N.K Singh is currently the Chairman of

The Review Committee for
Fiscal Responsibility and Budget
Management Act, 2003, under the
Ministry of Finance, Government of India.
ENACTMENT OF FRBM ACT

 IT WAS INTRODUCED BY THEN FINANCE

MINISTER OF INDIA,MR YASHWANT SINHA
IN DECEMBER 2000.
OBJECTIVES OF FRBM
ACT WERE
 To introduce transparent fiscal management
systems in the country
 To introduce a more equitable and manageable
distribution of the country's debts over the years
 To aim for fiscal stability for India in the long run
 The act was expected to give necessary
flexibility to Reserve Bank of India(RBI) for
managing inflation in India.
FEATURES OF FRBM ACT

The FRBM ACT made it mandatory for the

government to place the following along with the
union budget documents in parliament annually:
1. MEDIUM TERM FISCAL POLICY STATEMENT
2. MACROECONOMIC FRAMEWORK STATEMENT
3. FISCAL POLICY STRATEGY STATEMENT
The FRBM act proposed that revenue deficit,
fiscal deficit, tax revenue and the total
outstanding liabilities be projected as a
percentage of gross domestic product (GDP)in
the medium –term fiscal policy statement .
SIGNIFICANCE OF FRBM ACT

 THE POPULAR UNDERSTANDING OF FRBM ACT IS THAT ITS

MAIN GOAL IS TO RESTRICT GOVERNMENT
EXPENDITURE .THIS IS NOT TRUE .
THIS ACT IS N OT TO REDUCE GOVERNMENTS
EXPENDITURE ,BUT TO SWITCH THE EXPENDITURE OF
GOVERNMENT FROM REVENUE TO CAPITAL FOR
INCREASING THE COUNTRYS GDP
 THAT IS WHEN THE REVENUE DEFICIT (FUNDING FOR
REVENUE EXPENDITURE ) IS REDUCED AND THERE IS
INCREASE IN THE BORROWING FOR CAPITAL
EXPENDITURE ,THERE WILL BE AN INCREASE IN THE
OVERALL GDP BY 2.5 TIMES THE AMOUNT OF MONEY
BORROWED
Targets and fiscal indicators
as per the FRBM Act
 The central government agreed to the following fiscal
indicators and targets, subsequent to the enactment of the
FRBMA
 Revenue deficit to be eliminated by the 31st of March 2009. A
minimum annual reduction of 0.5% of GDP.
 Fiscal Deficit to be brought down to at least 3% of GDP by 31st
of March 2008. A minimum annual reduction – 0.3% of GDP.
 Total Debt to be reduced to 9% of the GDP (a target increased
from the original 6% requirement in 2004–05). An annual
reduction of – 1% of GDP.
 The purchase of government bonds by RBI must cease from 1
April 2006
What is FRBM Act? Why is it always
discussed around the Budget
 The Fiscal Responsibility and Budget Management (FRBM) Act was enacted in
2003 which set targets for the government to reduce fiscal deficits. The targets
were put off several times. In May 2016, the government set up a committee
under NK Singh to review the FRBM Act. The government believed the targets
were too rigid. The committee recommended that the government should
target a fiscal deficit of 3 per cent of the GDP in years up to March 31, 2020 cut
it to 2.8 per cent in 2020-21 and to 2.5 per cent by 2023.

In Budget 2017, Finance Minister Arun Jaitley deferred the fiscal deficit target of
3% of the GDP and chose a target of 3.2%, citing the NK Singh committee
report. The Comptroller and Auditor General of India had pulled up the
government for deferring the targets which it said should have been done
through amending the Act.

In Budget 2018, the government is not likely to meet its fiscal deficit target of
3.2% due to several factors such as low GST collections, spike in oil prices and
pressure to spend more due to upcoming elections.
UNION BUDGET 2020-
KEY HIGHLIGHTS
Finance Minister (FM) Nirmala Sitharaman has presented the Union Budget 2020
of India on the 1st of February, 2020. The government has taken some
measures towards reaching the target of a $5 trillion economy by the end of
2022.
 The government has proposed a new income tax regime under Section 115BAC
that comprises a significant change in the tax slabs rates. Taxpayers have
been provided with an option whether they want to pay taxes according to
the new regime or if they want to continue paying taxes according to the
existing regime. However, a few taxpayers may not be able to switch back to
the existing tax slab once they opt to follow the new one.
 Under section 194J- fees for technical services, TDS has been reduced to
2% from 10%.
 Tax audit threshold has been increased from Rs 1 crore to Rs 5 crore
provided turnover/ gross receipts in cash does not exceed 5% during the
previous year. Also, payment made in the P.Y in cash does not exceed 5%. For
such taxpayers, the due date for tax audit has been extended to the 31st of
October from the 30th of September.
 Under Section 80EEA, the additional deduction of Rs.1.5 lakh for interest
paid on home loans will now be allowed for the loans sanctioned till the 31st of
March 2021.
 The person involved/benefited out of fake ITC shall also be
liable for a penalty of 100% of the tax involved.
 Composition scheme restricted to taxpayers making the inter-
state supply of service, supplies not leviable to GST and supplies
through e-commerce operator where TCS is deductible.
 The date of the debit note will be standalone considered for
availing input tax credit, delinked from the date of invoice.
 Amendments will be made to Factor Regulation Act, 2011.
 Amendments to be made to enable NBFCs to extend invoice
financing to MSMEs.
 Provision of subordinated debt for MSMEs by Banks which is
guaranteed by Credit Guarantee Trust. The debt will count as
quasi-equity.
 Robust mechanism is in place to monitor and ensure health of all
scheduled commercial banks and depositors’ money is absolutely
safe.
 The government aims to double farmers’ income by 2022
 Help 15 lakh farmers solarise their grid-connected pump sets
 “KisanRail” and “KrishiUdaan” for seamless transport of
perishable farm goods
 About 150 higher educational institutions will start apprenticeship
embedded courses
 Special bridge courses to improve skill sets of those seeking
employment abroad
 Ind-SAT to be conducted in Africa and Asia under study in India
programme
 Deposit Insurance Coverage to increase from Rs 1 lakh to Rs 5
lakh per depositor
 Eligibility limit for NBFCs for debt recovery under SARFAESI
Act proposed to be reduced to asset size of Rs 100 crore or loan
size of Rs 50 lakh
 Separation of NPS Trust for government employees from PFRDAI
 Proposal to sell balance holding of government in IDBI BankMore
than 20, 000 empanelled hospitals under PM Jan Arogya Yojana
 “TB Harega Desh Jeetega” campaign launched to end TB by 2025
 Expansion of Jan AushadhiKendra Scheme to all districts by 2024
 Focus on liquid and greywater management along with waste
management
Review of N.K.Singh
committee
 The government formed the committee to review the
 FRBM Act, 2003 to suggest changes in the act. The
 committee was headed by Mr. N K Singh (politician,
 economist and former Indian Administrative Service
 officer). Recommendations of the committee were:
 Debt to GDP ratio: The Committee suggested using
 debt as the primary target for fiscal policy. A debt
 to GDP ratio of 60% should be targeted with a 40%
 limit for the centre and 20% limit for the states. The
 targeted debt to GDP ratio should be achieved by
 2023.
 frbm act
 Fiscal Council: The Committee proposed to create an
 autonomous Fiscal Council with a Chairperson and two
 members appointed by the centre. To maintain its
 independence, it proposed a non-renewable four-year
 term for the Chairperson and members. Further, these
 people should not be employees in the central or state
 governments at the time of appointment.
 The Committee suggested that grounds in which the
 government can deviate from the targets of FRBM
 should be clearly specified, and the government should
 not be allowed to notify other circumstances
 Borrowings from the RBI: The draft Bill restricts
the
 government from borrowing from the Reserve
Bank
 of India (RBI) except when: (i) the centre has to
 meet a temporary shortfall in receipts, (ii) RBI
 subscribes to government securities to finance
any
 deviations from the specified targets, or (iii) RBI
 purchases government securities from the
 secondary market
CONCLUSION
 FRBM ACT IS A NECESSARY TOOL TO PROMOTE THE
FISCAL DISCIPLINE OF THE GOVERNMENT .HOWEVER
IT HAD NOT MADE THE GOVERNMENT TO
SUCCESSFULLY ACHIEVE THE TARGETS.
 FOR ACHIEVING THE TARGETS ,THE GOVERNMENT
MUST DO AWAY WITH APPEASEMENT
EXPENDITURES AND MUST TAKE PRUDENT
FINANCIAL DECISIONS TRANSPARENTLY TO
PROMOTE THE ECONOMIC GROWTH AS INDIA ,WITH
ITS NATURAL RESOURCES AND DEMOGRAPHY ,HAS
THE ENORMOUS POTENTIAL TO INVOLVE ITSELF IN
ENHANCHED AND RAPID ECONOMIC GROETH AND
DEVELOPMENT.
THANK YOU !