Economics • Indian EconomyHard
Examine the implementation and statutory framework of the 'Fiscal Responsibility and Budget Management (FRBM) Act, 2003' in India. What was a major statutory objective mandated by this legislation for the central government?
A. Eliminating the revenue deficit entirely and reducing the fiscal deficit to specified percentage thresholds of GDP✓ Correct Answer
B. Ensuring complete convertibility of the Indian Rupee on the capital account within three years of enactment
C. Mandating that all state government borrowings be approved directly by the Union Finance Ministry
D. Prohibiting the central government from levying any indirect taxes other than customs duties
💡 Solution & Explanation
The FRBM Act, 2003, legally mandated the central government to eliminate the revenue deficit and reduce the fiscal deficit to sustainable levels, thereby introducing fiscal discipline and macroeconomic stability. The act prohibited the Reserve Bank of India from participating in primary auctions of government securities from 2006 onward, ending automatic monetization of budget deficits. Subsequent amendments provided glide paths for fiscal consolidation, though escape clauses allowed temporary deviations during economic emergencies. A related fiscal initiative is the Medium-Term Fiscal Policy statement presented alongside the Union Budget.
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