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Posted by on Jan 27, 2014 in FRBM Act |

Critical Evaluation of FRBM Act 2003

Key Issues

  • No civil court has jurisdiction to examine govt performance or for enforcement of this act or against any decision of govt under this act. This clause is highly controversial and major reason of non compliance from obligations.
  • No Development Measures – The act doesn’t specify any method or target related to growth in some basic infrastructure areas such as power generation, railways, highways etc. which is more important towards inclusive growth or sustainable development.
  • Decreasing Expenditure – The emphasis is always towards to reduction of expenditure to cut revenue deficit rather than making more revenue to reduce deficit such as recovery of NPA (non performing assets or loans) etc.
  • Exceptional Grounds – the act specifies that govt can’t run away from targets except on grounds of national security/calamity or others as determined by govt. So flexibility to determine exceptional grounds by giving just simple statements is used as Ram Ban by govt in recent years.
  • Subsidies – form large part of our revenue expenditure and ultimately of revenue deficit. But no provision of FRBM act is deal with situation of subsidies due to political pressure. It reduces larger part of capital expenditure and ultimately of development or growth.
  • False Assumptions – a) reduction of fiscal and revenue deficit will ultimately led to higher growth and b) higher fiscal deficit led to inflation. The increase in fiscal deficit in form of capital expenditure is the only factor to generate employment, demand for goods and services etc. and ultimately led to future economic growth. Also inflation is subjected to demand and supply rather than fiscal deficit.
  • Private Investments – the reduction in Gross Fiscal Deficit (GFD) is led to reduction in public investment and reduction in effective demand and ultimately reduction in private investments in the economy.
  • Exclusion of State Govt – the act doesn’t specify or cast any obligations on state govt to reduce or curb fiscal and revenue deficit because grant-in-aid to states is also consumes major part of Annual Budget.
  • The act has no provision for publicity of provisions and amendments of this act in periodic manner to make it easier for understanding of public about govt liabilities for economic development of the country.


  • Exceptional Grounds – The exceptional grounds to amend rule or act shall require more emphasis such as special majority to amend rules or require SC/HC/special tribunal clearance to amend rules of the act rather than just simply amending in parliament.
  • Increase revenue – The govt shall make endeavour to increase revenues by methods such as recovery of loans, collection of taxes (by advertisement, warnings etc.) to control fiscal deficit rather than just creating burden on side of expenditure especially on capital expenditure.
  • Tackle Subsidy –The govt shall make endeavour to eliminate system of subsidies to control fiscal deficit. As of now, maximum part of subsidies are used by non users or leaked in corruption and almost 1/4th of it reached to the needed ones.
  • Boost Public Investment – The famous economist Dr. Raja Chelliah suggests that the ratio of GFD to GDP shall be around 4-5% as public investment on infrastructure is essential to boost economic growth.
  • The recent step of govt towards effective revenue deficit by eliminating factor of grant for capital assets is also a bright step towards boosting expenditure on infrastructure or basic amenities to create employment for future prospective growth. But right action on paper is always seems different from right action on ground.
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