"Fiscal Deficit and Economic Growth Linkages in India: Impact of FRBM
In the past, FRBM
fiscal targets have been point estimates without a clearly defined guidance on relaxing these targets during exceptional circumstances.
And some improvement again started being witnessed since the 2002-03 which was conditioned by the enactment of the Fiscal Responsibility and Budget Management (FRBM
) Act in 2003.
Merely meeting targets stipulated in the FRBM
Act through clever accounting practices such as the transfer of massive subsidies to oil marketing and fertiliser companies as off budget items will not do.
Various mechanisms have been adopted to ensure compliance with the FRBM
However, the rolling targets for 2012-13 and 2013-14 (restricting the revenue and fiscal deficit to 2.1% and 3.5% of GDP, respectively) continue to be less stringent than those indicated by the Thirteenth Finance Commission (ThFC) in its report that was published last year.1 Nevertheless, the announcement regarding the introduction of an amendment to the Fiscal Responsibility and Budget Management Act, 2003 (FRBM
Act) to lay down the fiscal roadmap for the coming five years is a positive step.
The above rating factors in the persistent high level of revenue and fiscal deficits of GoWB, continued high level of committed expenditure, high debt level in relation to revenue receipts, implications of the recommendations of Fifth Pay Commission on the finances of GoWB (entailing enhanced salary & pension payment together with arrear payment), improving but relatively low debt-servicing indicators, gradual increase in the pace of industrialisation in the State of West Bengal, steady growth in NSDP and steps being taken by GoWB to improve its present financial position by adopting the FRBM
legislation to avail the benefits of Thirteenth Finance Commission (THFC) and contemplating various measures for increasing revenue receipts and containing revenue expenditure.
But now, the Fiscal Responsibility and Budget Management (FRBM
) laws constrain government spending and as a result, borrowing is on its way down.
By addressing these, the UPA can reduce the Centre and the states' combined debt-GDP ratio from 82 per cent to 65-70 per cent in five years which is the FRBM
(Fiscal Responsibility and Budget Management) target the TFC has laid down.
The government has relaxed FRBM
targets for 2008-09 to provide the much needed demand boost to counter the situation created by the global economic downturn.
2800 crores in 2006-07 and was able to maintain the stipulated targets of the FRBM
with respect to fiscal and revenue deficits.
Main limitations of the Budget--2008-09 is its inability to fulfill FRBM