The Fiscal Responsibility and Budget Management Act (FRBMA) was enacted on 26.08.2003. This Act was initiated with the motive to bring financial discipline by reducing the fiscal deficit of our Country and to improve overall management of public fund. The purpose of this Act is to eliminate revenue deficit. FRBMA provides institutional framework of fiscal consolidation by deteriorating fiscal situation.
This Act binds Government of all times to stick on in the path of fiscal consolidation. This Act prohibits the borrowing from the Reserve bank of India making monitory policy independent of fiscal policy. The objective of the Act is to maintain transparent fiscal management systems in the country and make the Government to ensure inter generational equity in fiscal management. Objectives include ensuring of long term Macroeconomic stability and fiscal stability by the Government. Objectives of the Act includes in removing fiscal impediments for efficient conduct of monitory policy and to introduce more equitable distribution of country debts over years.
The Central Government produces several statements before the Houses of Parliament in each financial year and demand for grants. The statements includes Medium term fiscal policy statements, Fiscal policy strategy statement and Macroeconomic framework statement.
The Central Government shall take appropriate steps to eliminate fiscal and revenue deficit by building up revenue surplus. It has powers to make rules by fixing the target on reduction of both fiscal, revenue deficits. It also has power to fix the target of contingent liabilities in the form of guarantees and the total liabilities as a percentage of Gross Domestic Product (GDP). Revenue deficit may increase only due to some unforeseen circumstances such as national calamity, national security or such other grounds as the Central Government specifies.
The Central Government shall borrow amount from the Reserve bank in the form of advances for cash disbursement in excess over cash receipts in the financial year. In case of any advances from Reserve bank for short term receipts, the State Governments have to repay it within the fiscal year as prescribed under Section 17(5) of the Reserve Bank of India Act, 1934. The Reserve Bank may subscribe to primary issues of Central Government Securities and may buy, sell securities of the Central Government in secondary market.
The Central Government as a measure for fiscal transparency ensures in fiscal operations in public interest and minimizes secrecy in preparation of financial statements to demand for grants as may be prescribed. Minister of Finance shall review the trends in revenue and expenditure in every quarter in relation to the budget. In case of any shortfall in the revenues or increase in expenditure shown in the fiscal policy strategy statement, the Central Government may take appropriate steps to raise the revenues and make measures to reduce expenditure. No obligations shall be entertained without the approval of the Parliament houses. In case of any unfortunate entertainment of the obligations then the Minister of Finance will make a statement before the Parliament explaining its mandate for the positive outcomes of the budget and for the measures that acts as a remedial nature of Central Government.
The Central Government may make any rules by notifying it in the Official Gazette for the purpose of this Act. Any rule made by the Central Government has to be discussed and get sanction from both the Houses of Parliament. In case of sanctioning of the rule it can be enforced but in case if the Houses of the Parliament rejects, it goes to the opinion of the President and then comes to the Parliament and if still not sanctioned then the rules placed before gets invalid.
No legal proceedings or Suits shall be initiated against the Central Government or any of its officers for any act or omission done in favour of this Act in good faith. Civil Court has no rights to question any activities done by the Central Government in pursuance of this Act. This Act is not of derogative nature rather it is an addition there to any other law in force for the time being. In case of any difficulties, the Central Government by order notified in the Official Gazette may give effect to the provision of the Act. No order shall be made beyond this order after two years.
Beyond all these, the Finance Act 2012 amends this Act by adding one extra document with the three other documents such as Medium-Term Fiscal Policy Statement, Fiscal Policy Strategy Statement and Macroeconomic Framework Statement. That extra document is Medium Term Expenditure Framework Statement (MTEF). This Act is applicable to Central Government as several state enacted fiscal responsibility legislation. The purpose of this Act will get achieved only with the active coordination of all States. Government is positively trying its effort to meet the targets mandate of this Act.
by C.Srivenkatesh Prabhu