Question

Q. With reference to ‘Fiscal Responsibility and Budget Management Act (FRBM) Act 2003’ which one of the following statements is incorrect?

• A.
  Government can borrow from RBI by ways and means advances.
• B.
  Government is mandated to reduce Revenue Deficit up to 3% of GDP.
• C.
  Fiscal deficit and revenue deficit may exceed targets only on the grounds such as national security, calamity.
• D.
  The Government will lay macroeconomic framework statements before the Parliament in each financial year.

Answer 1

The correct option is B

Government is mandated to reduce Revenue Deficit up to 3% of GDP.
Explanation:

The FRBM Act was passed in the year 2003. It is an act of the parliament that set targets for the Government of India to establish financial discipline, improve the management of public funds, strengthen fiscal prudence and reduce its fiscal deficits. The Primary objective was elimination of revenue deficit and bringing down the fiscal deficit.

Some Provisions

• The act also intended to give the required flexibility to the Central Bank (RBI) for managing inflation in India.
• Revenue deficit to be eliminated (rather 3%).
• The Government can move away from the path of fiscal consolidation only in case of natural calamity, national security and other exceptional grounds which the Central Government may specify.
• It was mandated by the act that 1. Macroeconomic Framework Statement 2. Medium Term Fiscal Policy Statement and 3. Fiscal Policy Strategy Statement must be placed along with the Budget documents annually in the Parliament.