PPT: Fiscal Responsibility and Budget Management Act Notes | EduRev

Crash Course for UPSC aspirants

UPSC : PPT: Fiscal Responsibility and Budget Management Act Notes | EduRev

 Page 1


Lecture 8 
“Taxation Structure”
Prelims 2020 Crash Course 
Capstone IAS Learning
Page 2


Lecture 8 
“Taxation Structure”
Prelims 2020 Crash Course 
Capstone IAS Learning
What will we cover
Fiscal Responsibility and Budgetary 
Management Act 
Ricardian Equivalence Theory 
Various Important taxation terms 
Goods & Services Tax(GST)
Page 3


Lecture 8 
“Taxation Structure”
Prelims 2020 Crash Course 
Capstone IAS Learning
What will we cover
Fiscal Responsibility and Budgetary 
Management Act 
Ricardian Equivalence Theory 
Various Important taxation terms 
Goods & Services Tax(GST)
FRBM Act
Fiscal Responsibility and Budget Management Act (FRBM Act) was 
introduced in Parliament as the FRBM Bill in December 2000. It 
seeks to foster fiscal discipline on the Central Government and 
achieving a balanced budget with effective revenue management. 
The Act was passed on August 26, 2003; therefore, it is also called 
Fiscal Responsibility and Budget Management Act (FRBMA), 2003. 
FRBMA was brought into effect from July 5, 2004. 
Objectives of this Act : 
-
Elimination of revenue deficit and bring down fiscal deficit. 
-
Transparent system of fiscal management in the country. 
-
Ensuring fiscal stability in the long run. 
-
Give required flexibility to the central bank for managing 
inflation in India.
Page 4


Lecture 8 
“Taxation Structure”
Prelims 2020 Crash Course 
Capstone IAS Learning
What will we cover
Fiscal Responsibility and Budgetary 
Management Act 
Ricardian Equivalence Theory 
Various Important taxation terms 
Goods & Services Tax(GST)
FRBM Act
Fiscal Responsibility and Budget Management Act (FRBM Act) was 
introduced in Parliament as the FRBM Bill in December 2000. It 
seeks to foster fiscal discipline on the Central Government and 
achieving a balanced budget with effective revenue management. 
The Act was passed on August 26, 2003; therefore, it is also called 
Fiscal Responsibility and Budget Management Act (FRBMA), 2003. 
FRBMA was brought into effect from July 5, 2004. 
Objectives of this Act : 
-
Elimination of revenue deficit and bring down fiscal deficit. 
-
Transparent system of fiscal management in the country. 
-
Ensuring fiscal stability in the long run. 
-
Give required flexibility to the central bank for managing 
inflation in India.
Features of the Act : 
It was mandated by the act that the following 3 statements shall be placed along with 
the budget documents every year. 
-
Macroeconomic Framework Statement 
-
Medium term Fiscal Policy Statement 
-
Fiscal Policy Strategy Statement 
4 fiscal indicators shall be projected in the medium-term fiscal policy statement. These 
indicators are : 
-
Revenue Deficit as a %age of GDP 
-
Fiscal Deficit as a %age of GDP 
-
Tax Revenue as a %age of GDP 
-
Total Outstanding Liabilities as a %age of GDP 
Revenue deficit to be eliminated by 31st of March 2009. A minimum annual reduction of 
0.5% of GDP. 
Fiscal Deficit to be brought down to at least 3% of GDP by 31st of March 2008. A 
minimum annual reduction – 0.3% of GDP. 
In 2013, there were two changes that were introduced : Effective Revenue Deficit and 
Medium Term Expenditure Framework Statement.
Page 5


Lecture 8 
“Taxation Structure”
Prelims 2020 Crash Course 
Capstone IAS Learning
What will we cover
Fiscal Responsibility and Budgetary 
Management Act 
Ricardian Equivalence Theory 
Various Important taxation terms 
Goods & Services Tax(GST)
FRBM Act
Fiscal Responsibility and Budget Management Act (FRBM Act) was 
introduced in Parliament as the FRBM Bill in December 2000. It 
seeks to foster fiscal discipline on the Central Government and 
achieving a balanced budget with effective revenue management. 
The Act was passed on August 26, 2003; therefore, it is also called 
Fiscal Responsibility and Budget Management Act (FRBMA), 2003. 
FRBMA was brought into effect from July 5, 2004. 
Objectives of this Act : 
-
Elimination of revenue deficit and bring down fiscal deficit. 
-
Transparent system of fiscal management in the country. 
-
Ensuring fiscal stability in the long run. 
-
Give required flexibility to the central bank for managing 
inflation in India.
Features of the Act : 
It was mandated by the act that the following 3 statements shall be placed along with 
the budget documents every year. 
-
Macroeconomic Framework Statement 
-
Medium term Fiscal Policy Statement 
-
Fiscal Policy Strategy Statement 
4 fiscal indicators shall be projected in the medium-term fiscal policy statement. These 
indicators are : 
-
Revenue Deficit as a %age of GDP 
-
Fiscal Deficit as a %age of GDP 
-
Tax Revenue as a %age of GDP 
-
Total Outstanding Liabilities as a %age of GDP 
Revenue deficit to be eliminated by 31st of March 2009. A minimum annual reduction of 
0.5% of GDP. 
Fiscal Deficit to be brought down to at least 3% of GDP by 31st of March 2008. A 
minimum annual reduction – 0.3% of GDP. 
In 2013, there were two changes that were introduced : Effective Revenue Deficit and 
Medium Term Expenditure Framework Statement.
N.K Singh Committee
The Committee suggested using debt as the primary target for fiscal 
policy. A debt to GDP ratio of 60% should be targeted with a 40% 
limit for the centre and 20% limit for the states. The targeted debt to 
GDP ratio should be achieved by 2023. 
It also recommended a fiscal glide path to gradually reduce Fiscal 
Deficit to 2.5% of GDP by FY23. 
The Committee proposed to create an autonomous Fiscal Council with 
a Chairperson and two members appointed by the centre. To maintain 
its independence, it proposed a non-renewable four-year term for the 
Chairperson and members. 
The committee recommended the concept of “escape clause”, which if 
triggered will allow the government to deviate from its Fiscal deficit 
target by 0.5% of GDP. 
The committee also mentioned the grounds under which “escape 
clause” can be triggered.
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