Fiscal Responsibility and Budget Management Act - 2012

The paper is an attempt to throw light on the Fiscal Responsibility and Budget Management (FRBM) Act 2003 was introduced with a view to curb large deficits. The Act came into effect on July 5, following the issue by the Finance Ministry made under the Act. But in light of the changed economic scenario, the ministry feels there is a need to abandon the original annual goalposts laid down by the 2004 law and adopt only a medium-term outlook. The government needs to postpone the target every year. The two important features of the amendment announced by Union Finance Minister Pranab Mukherjee, while presenting the Union Budget 2012-13 in the direction of expenditure reforms are Effective Revenue Deficit and Medium Term Expenditure Framework. Government had outlined its intention to bring out amendment in the FRBM Act during 2011-12. The rule based legislation for fiscal consolidation had helped India in achieving lower deficit and in turn lower debt as percentage of GDP during 2004-05 to 2007-08. With 2012-13 being the first year of the Twelfth Five Year Plan, efforts have been made to provide adequate resources for health, education, irrigation and other infrastructure sector. At the same time, growth in subsidy related expenditure is proposed to be contained within sustainable levels. Though the Fiscal Responsibility and Budget Management Act 2003 or Amended FRBM bill 2000 is a credible effort by the government to fix responsibility on the government to reduce fiscal deficit and bring transparency in fiscal operations of the government it has certain limitations. The FRBM Act not only mandates minimum quantifiable targets for of debt, deficit and guarantees in a time bound manner but also embeds a series of improvements in the area of fiscal transparency and medium-term reducing the growth fiscal planning to improve budget management