Explained: The ugly truth about India’s adherence to the FRBM Act

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Written by Udit Misra | Updated: January 31, 2020 3:55:09 pm

A government that abides by the FRBM rules enjoys greater credibility among the rating agencies and market participants – both national and international.

As the years have rolled by, fiscal deficit has become a key factor to watch out for in every Budget presentation. It is considered the most important marker of a government’s financial health.

The Fiscal Responsibility and Budget Management Act, which was initiated in 2003 but has been tweaked several times since then, lays down the red lines for all types of government deficits including fiscal deficit. A government that abides by the FRBM rules enjoys greater credibility among the rating agencies and market participants – both national and international.

Not letting the fiscal deficit go completely out of control has been one of the standout achievements of the incumbent NDA government. However, as India’s economic growth has decelerated, there have been growing pressures on the government to breach the FRBM orthodoxy and spend in excess of fiscal deficit targets in a bid to reboot domestic economic growth.