The Fiscal Responsibility and Budget Management (FRBM) Act is a law enacted by the Parliament of India in 2003. Its core purpose is to institutionalize fiscal discipline, enhance transparency, and ensure accountability in the Central Government's financial management. The need for the Act arose from the high fiscal deficits, growing debt burdens, and lack of transparency that threatened India's economic stability in the 1990s and early 2000s. The FRBM Bill was introduced in December 2000 by then Finance Minister Yashwant Sinha and the Act came into effect on July 5, 2004.
The Act works by setting mandatory targets for key fiscal indicators. The original Act mandated a phased reduction of the fiscal deficit to 3% of GDP and the elimination of the revenue deficit. It requires the government to present three policy statements to Parliament annually: the Medium Term Fiscal Policy Statement, the Fiscal Policy Strategy Statement, and the Macro-economic Framework Statement. A key mechanism is the 'escape clause', which allows the government to deviate from the targets under exceptional circumstances like national security threats, natural disasters, or economic recessions.
The FRBM Act connects to the broader concept of Fiscal Responsibility Legislation (FRLs), which many Indian states have also adopted. It was comprehensively reviewed by the N.K. Singh Committee, formed in 2016. The most significant change came through an amendment in 2018, based on the Committee's recommendations. This amendment revised the fiscal deficit target to 3% of GDP as a permanent rule and defined the escape clause to allow a deviation of up to 0.5% of GDP. Crucially, the amendment introduced a target for the debt-to-GDP ratio (40% for the central government by 2024-25) and removed the strict targets for the revenue deficit.