Economics • Indian EconomyHard
What does the 'Fiscal Responsibility and Budget Management Act' of two thousand and three mandate for the management of India's public finances?
A. Institutionalizing financial discipline by reducing fiscal and revenue deficits to targeted statutory limits and eliminating central bank participation in primary debt auctions✓ Correct Answer
B. Mandating a balanced budget every quarter without exception under penalty of dissolving Parliament
C. Freezing all capital infrastructure expenditures during periods of mild economic contraction
D. Transferring all taxation powers exclusively to state governments to promote fiscal federalism
💡 Solution & Explanation
The Fiscal Responsibility and Budget Management Act was enacted to institutionalize fiscal discipline, reduce fiscal and revenue deficits to sustainable benchmarks, enhance budgetary transparency, and prohibit the Reserve Bank of India from subscribing to primary debt issuances after two thousand and six. Quarterly balanced budgets are economically impractical during recessions. Freezing capital expenditures would undermine long-term growth. Centralizing or decentralizing taxation is governed by constitutional schedules rather than the act.
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