The Fiscal Responsibility and Budget Management Act (FRBMA) is an Act of the Parliament of India, enacted in 2003, to institutionalize financial discipline and improve the management of public funds. The FRBM Bill was introduced in 2000 by the Atal Bihari Vajpayee Government to provide legal backing for fiscal discipline. It was created to solve the problem of high fiscal deficits, growing debt burdens, and a lack of transparency in government finances during the 1990s and early 2000s. The original goal was to eliminate the revenue deficit and reduce the fiscal deficit to a manageable 3% of GDP by March 2008.
The Act works by setting mandatory targets for the Central Government and requiring transparency. Key provisions include the requirement to lay three fiscal policy statements before Parliament with the Budget: the Macro-economic Framework Statement, the Medium Term Fiscal Policy Statement, and the Fiscal Policy Strategy Statement. It also generally bars the Central Government from borrowing from the Reserve Bank of India (RBI) except in special situations.
The FRBMA has undergone significant changes, notably following the review by the N.K. Singh Committee, which was constituted in 2016. The April 2018 amendment removed the targets for Revenue Deficit (RD) and revised the date for achieving the 3% of GDP fiscal deficit target to March 31, 2021. This amendment also introduced a target for the Central Government debt not to exceed 40% of GDP by 2024-2025. A crucial mechanism is the 'escape clause' under Section 4(2), which allows the government to deviate from the fiscal deficit target by up to 0.5% of GDP under exceptional circumstances like national security, war, or national calamity. The government has since announced a new target to reduce the fiscal deficit to 4.5% of GDP by 2025-26, which necessitates further amendment to the Act. The N.K. Singh Committee also recommended the establishment of an independent Fiscal Council to oversee compliance and provide assessments.