{"id":41884,"date":"2021-01-22T18:30:36","date_gmt":"2021-01-22T13:00:36","guid":{"rendered":"https:\/\/www.oliveboard.in\/blog\/?p=41884"},"modified":"2025-05-27T23:59:49","modified_gmt":"2025-05-27T18:29:49","slug":"fiscal-consolidation-frbm-act","status":"publish","type":"post","link":"https:\/\/www.oliveboard.in\/blog\/fiscal-consolidation-frbm-act\/","title":{"rendered":"Fiscal Consolidation & FRBM Act: Notes & Free eBook PDF"},"content":{"rendered":"\n

To enable you to have a better understanding of the complicated Economics and Finance related concepts<\/strong> that keep doing rounds in the news as well as in important yearly Government Documents such as the <\/span>Economic Survey & Union Budget, we have come up with this blog that explains to you in the most lucid manner the basic concept of Fiscal Consolidation and also the policies, acts and other provisions by the Union Government in this respect. Go through the blog post on Fiscal Consolidation & FRBM Act to understand it better. This will surely help you better know the concept as well you will be able to comprehend it henceforth in the news and elsewhere. It will no doubt be very useful for the RBI Grade B Exam<\/strong><\/a><\/span> as well. <\/span><\/p>\n\n\n\n

Fiscal Consolidation & FRBM Act<\/strong><\/span><\/h2>\n\n\n\n

Download the Free eBook on FRBM Act Here: <\/strong><\/span><\/h3>\n\n\n\n

What is Fiscal Consolidation?<\/strong><\/span><\/h3>\n\n\n\n

Fiscal Consolidation is referred to as <\/span>the policies effected\/undertaken by both Governments (Union & State) to lessen\/reduce their respective deficits (primarily Fiscal Deficit) and accumulation of debt stock. Fiscal consolidation has been designed with a judicious mix of rationalisation in the total expenditure of the Government as a percentage of GDP and also improvement in gross tax revenues as a percentage of GDP.<\/span><\/p>\n\n\n\n

The Government has been keen on and has also taken several measures to improve the fiscal situation in the Government Finances. Several measures have been suggested to realize the objective of Fiscal Consolidation such as better and improved Tax Revenue Collections<\/strong>, Prudent Government Spending<\/strong>, Mindful Government Borrowings,<\/strong> etc<\/span><\/p>\n\n\n\n

\n\n\n\n

Fiscal Responsibility & Budget Management Act (FRBM)<\/span><\/strong><\/h3>\n\n\n\n

1. In India, Fiscal Consolidation or Fiscal roadmap is expressed and measured in terms of Deficit Targets (Fiscal & Revenue Deficits)<\/strong>. The Fiscal Responsibility and Budget Management (FRBM) Act<\/strong> sets the targets for fiscal consolidation in India.<\/span><\/p>\n\n\n\n

2. The Fiscal Responsibility and Budget Management (FRBM) Act was enacted in 2003<\/strong> that sets targets for the government to reduce fiscal deficits. FRBM Act provides a legal institutional framework for fiscal consolidation.<\/span><\/p>\n\n\n\n

3. It is now mandatory for the Central government to take measures to <\/span>(a) reduce\/lessen fiscal deficit, (b) eliminate revenue deficit, and (c) generate revenue surplus in the subsequent years.<\/strong><\/p>\n\n\n\n

4. The Act binds not only the present government but also the future Government to adhere to the path of fiscal consolidation. <\/span><\/p>\n\n\n\n

5. The Government can move away from the path of fiscal consolidation only in case of natural calamity, national security, and other exceptional grounds that <\/span>the Central Government may specify.<\/span><\/p>\n\n\n\n

6. Further, the Act prohibits borrowing by the government from the Reserve Bank of India<\/strong>, thereby, <\/span>making monetary policy independent of fiscal policy<\/strong>. <\/span><\/p>\n\n\n\n

7. The Act bans the purchase of primary issues of the Central Government securities by the RBI after 2006, preventing monetization of government deficit. <\/span><\/p>\n\n\n\n

8. The Act also requires the government to lay before the parliament three policy statements in each financial year namely Medium-Term Fiscal Policy Statement; Fiscal Policy Strategy Statement and Macroeconomic Framework Policy Statement.<\/span><\/p>\n\n\n\n

9. Also to impart fiscal discipline at the state level<\/strong>, the Twelfth Finance Commission gave incentives to states through conditional debt restructuring and interest rate relief for introducing Fiscal Responsibility Legislations (FRLs)<\/strong>. All the states have implemented their own FRLs.<\/span><\/p>\n\n\n\n

Register for the RBI Grade B Mock Tests Here<\/strong><\/a> <\/strong><\/span><\/p>\n\n\n\n

\n\n\n\n

Fiscal Consolidation & FRBM Act – Measures Required for Realizing the Fiscal Consolidation Targets <\/strong><\/span><\/h3>\n\n\n\n
  1. Improved Tax Revenue realization (Direct & Indirect Tax) – <\/strong>For this, increasing the efficiency of tax administration by reducing tax avoidance, eliminating tax evasion, enhancing tax compliance, etc. need to be made.<\/span>
    <\/li>
  2. Enhancing Tax-GDP Ratio – <\/strong> by widening the tax base<\/strong> & minimizing tax concessions.<\/strong><\/span>
    <\/li>
  3. Better Targeting of Government Subsidies<\/strong> and extending the Direct Benefit Transfer<\/strong> scheme for more subsidies.<\/span><\/li><\/ol>\n\n\n\n

    Recommendations of N K Singh Committee on Fiscal Consolidation <\/strong><\/span><\/h3>\n\n\n\n

    In May 2016<\/strong>, the Central Government <\/span>set up a committee under the chairmanship of N.K. 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 the years up to March 31, 2020, cut it to 2.8 per cent in 2020-21, and to 2.5 per cent by 2023. <\/strong><\/span><\/p>\n\n\n\n

    \n\n\n\n

    Fiscal Consolidation & FRBM Act – Targets set by the Government for achieving Fiscal Consolidation<\/strong><\/span><\/h3>\n\n\n\n