October 4, 2022

What is the Fiscal Consolidation and Fiscal Responsibility Budget Management Act?

There are many economic concepts that you go through in your school or the higher education life. So, you might have heard about the fiscal policies and relevant terms. Fiscal is related to financial wellbeing. It can either be in deficit, consolidation, or even in the surplus. Therefore, in this guide we will be talking about the Fiscal consolidation and the FRBM Act. 

The full form of the acronym FRBM Act is the Fiscal Responsibility Budget Management Act. We completely understand that many of you are puzzled with these complicated terminologies. Hence, we have brought this guide for you to highlight key information related to the same. 

Know all about the Fiscal consolidation

When the government is trying to reduce the underlying fiscal deficit of the nation it is considered as the fiscal deficit. In simpler words, the Indian government takes several measures to reduce fiscal deficits and debt stock accumulation. However, don’t get misunderstood by the fact that the fiscal deficit is getting eliminated by such measures. 

What is all about the Fiscal deficit?

To put simply, Fiscal deficit is the key indicator showcasing the financial health of the Government. More important, it shows how much the gap is between Government borrowing and exporting. There are two major deficits that are associated with the government are Fiscal deficit and the Revenue deficit. 

  • Some of the adverse effects that arise because of it are mentioned below. 
  • Spikes up the interest rates of loans
  • Spikes up the inflation rate.
  • Due to the higher interest payment rate, Government gets more financial burden.
  • So, what is the solution? The FRBM act addresses several concerns. Keep reading this post to know more details about the same.

FRBM Act: Explained briefly

In the year 2000, under the NDA –I government,  then Prime Minister Atal Bihari Vajpayee introduced a bill to provide the legal backing and the financial discipline of our nation. That bill is called the Fiscal Responsibility and Budget Management Act. However, it was not the same year when this bill was passed. The FRBM was passed in 2003 where the Indian parliament decided to improve the financial discipline of the nation. Certain measures that this bill included were proper public funds management, strengthening fiscal prudence, and reducing its fiscal deficits. All in all, the motto was to minimize the financial burden from the nation.

Salient Features of the FRBM Act

There are some key features of the FRBM act that was the main motto when the government introduced the act in the Parliament 

  • It provides the Macroeconomic Framework Statement
  • Statement of the Medium Term Fiscal Policy
  • Fiscal Policy Strategy Statement
  • There were four fiscal indicators proposed that helped in calculating the GDP percentage. Those four are GDP’s revenue deficit as a percentage, GDP’s fiscal deficit as a percentage of, GDP’ tax revenue as a percentage, and total outstanding liabilities as a percentage of GDP. All these key indicators were supposed to be there in the Statement of the Medium Term Fiscal Policy.

Conclusion

The entire post highlighted the key information about the FRBM act and the financial consolidations. From an exam point of view and to boost your financial literacy, these modules are relevant. On the internet, there is a plethora of information that exam aspirants must consider. 

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