About FRBM Act

• The Fiscal Responsibility and Budget Management (FRBM) Act was enacted in 2003. It is concerned with the maintenance of a balance between government revenue and government spending.
• The Act set targets for the government to reduce fiscal deficits. It was mandated that both states and the centre would cut the fiscal deficit to 3% by 2008-09. The targets were put off several times. 
  • Fiscal deficit is the difference between total expenditure and total receipts except borrowing and other liabilities.
• The Act also mandated that along with the budget, the Central Government should place the following three policy statements before houses of Parliament. 
  • Medium-term Fiscal Policy Statement: It sets a three-year rolling target for specific fiscal indicators and examines whether revenue expenditure can be financed through revenue receipts on a sustainable basis and how productively capital receipts including market borrowings are being utilised. 
  • Fiscal Policy Strategy Statement: It sets the priorities of the government in the fiscal area, examining current policies and justifying any deviation in important fiscal measures. 
  • Macroeconomic Framework Statement: It assesses the prospects of the economy with respect to the GDP growth rate, fiscal balance of the central government and external balance.
• In 2016, the government set up a committee under NK Singh to review the FRBM Act. The government believed the targets were too rigid. 

Recommendations of NK Singh Committee

• The committee recommended that the central government should bring down the fiscal deficit to 3% of the GDP by 2020, cut it to 2.8% in 2020-21 and 2.5% by 2023.
• The committee also recommended that states should keep their fiscal deficit under 3% of their respective gross state domestic product (GSDP).
• It also suggested that India should adopt a debt-to-GDP ratio as a new anchor of fiscal policy along with the fiscal deficit and gradually bring it down to 60 per cent — comprising 40 per cent for the Centre and 20 per cent for the states.