Consider the following statements regarding the Fiscal Responsibility and Budget Management (FRBM) Act, 2003:
- 1. The Act mandates the elimination of the revenue deficit and the reduction of the fiscal deficit to 3% of GDP.
- 2. It prohibits the government from borrowing from the Reserve Bank of India, except under exceptional circumstances.
- 3. The Act requires the Central Government to present a Medium-Term Fiscal Policy Statement along with the annual budget.
Which of the statements given above are correct?
- AOnly 1 and 2
- BOnly 2 and 3
- COnly 1 and 3
- DAll of 1, 2 and 3
Show answer and explanation
Correct answer: (d) All of 1, 2 and 3
Explanation
The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 set out a legal path to fiscal discipline:
- Statement 1: it required the Centre to eliminate the revenue deficit and bring the fiscal deficit down to 3% of GDP;
- Statement 2: it stopped the Centre from borrowing from the RBI, except through temporary ways and means advances or on exceptional grounds; from 2006 the RBI could no longer buy primary issues of central government securities;
- Statement 3: with the budget, the government must lay the Medium-Term Fiscal Policy Statement, the Fiscal Policy Strategy Statement and the Macroeconomic Framework Statement.
All three are features of the Act. (Its 2018 amendment, after the N.K. Singh Committee, added debt targets of 40% of GDP for the Centre and 60% for the general government, and dropped the revenue deficit target.)