What is Fiscal Responsibility and Budget Management Act (FRBMA)?

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  • The Fiscal Responsibility and Budget Management Act, 2003 (FRBMA) is an Indian legislation enacted by the Parliament of India to institutionalise financial discipline, reduce India's fiscal deficit, improve macroeconomic management and the overall management of the public funds by moving towards a balanced budget.
  • The main purpose was to eliminate revenue deficit of the country (building revenue surplus thereafter) and bring down the fiscal deficit to a manageable 3% of the GDP by March 2008. However, due to the 2007 international financial crisis, the deadlines for the implementation of the targets in the act was initially postponed and subsequently suspended in 2009.
  • In 2011, given the process of ongoing recovery, Economic Advisory Council publicly advised the Government of India to reconsider reinstating the provisions of the FRBMA.
  • It was introduced by the then Finance Minister Yashwant Sinha in 2000.
  • The main objectives of the act were:
    • to introduce transparent fiscal management systems in the country
    • to introduce a more equitable and manageable distribution of the country's debts over the years
    • to aim for fiscal stability for India in the long run
  • Additionally, the act was expected to give necessary flexibility to Reserve Bank of India(RBI) for managing inflation in India.
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