Q. What were the reasons for the introduction of Fiscal Responsibility and Budget Management (FRBM) Act, 2013? Discuss critically its salient features and their effectiveness. (150 words, 10 marks)
Why the Question?
UPSC PYQ – CSE Mains – 2017
Keywords of the Question
- Fiscal Responsibility and Budget Management (FRBM) Act, 2013
- Salient features
- Effectiveness
Directive Word
Discuss – Essentially this is a written debate where you are using your skill at reasoning, backed up by carefully selected evidence to make a case for and against an argument, or point out the advantages and disadvantages of a given context. Remember to arrive at a conclusion
How to approach this Question?
Introduction
- Briefly introduce the FRBM Act, 2013.
- Mention the context and need for its introduction.
Body
- Reasons for Introduction:
- High fiscal deficit and debt levels.
- Need for fiscal discipline and transparency.
- Economic stability and growth.
- Salient Features:
- Targets for fiscal deficit and revenue deficit.
- Introduction of fiscal rules and frameworks.
- Reporting mechanisms and accountability.
- Critical Analysis of Effectiveness:
- Achievements in fiscal consolidation.
- Challenges and limitations faced.
- Impact on economic growth and stability.
Conclusion
- Summarize the overall impact of the FRBM Act.
- Suggest possible improvements or reforms needed.
Note: Please note that the following ‘answers’ are not ‘model answers’ nor are they synopses in the strictest sense. Instead, they are content designed to meet the demands of the question while providing comprehensive coverage of the topic.
Answer Key
Introduction
The Fiscal Responsibility and Budget Management (FRBM) Act, 2013, was introduced to institutionalize fiscal discipline, reduce India’s fiscal deficit, and improve macroeconomic management. It aimed to ensure long-term fiscal stability and transparency in India’s fiscal operations.
Body
Reasons for Introduction
- High Fiscal Deficit and Debt Levels: Persistent high fiscal deficits and rising public debt necessitated a legal framework to enforce fiscal discipline.
- Economic Stability: To maintain economic stability and prevent fiscal profligacy, which could lead to inflation and economic instability.
- Transparency and Accountability: To introduce a transparent system of fiscal management and ensure accountability in government spending.
Salient Features
- Fiscal Deficit Targets: Set targets for reducing fiscal deficit and revenue deficit as a percentage of GDP.
- Fiscal Rules: Introduced fiscal rules to limit government borrowing and ensure sustainable debt levels.
- Reporting Mechanisms: Mandated regular reporting and auditing of fiscal performance to ensure compliance.
Effectiveness
- Achievements: The FRBM Act has contributed to fiscal consolidation and improved fiscal discipline.
- Challenges: However, it faced challenges such as deviations from targets due to economic slowdowns and external shocks.
- Impact: While it has helped in maintaining fiscal prudence, the rigidity of targets sometimes constrained counter-cyclical fiscal policies.
Conclusion
The FRBM Act has been instrumental in promoting fiscal discipline and transparency. However, there is a need for flexibility to accommodate economic cycles and unforeseen circumstances. Reforms and periodic reviews can enhance its effectiveness in achieving sustainable fiscal management.
Mind Map
