{"id":65499,"date":"2026-01-30T21:57:42","date_gmt":"2026-01-30T16:27:42","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=65499"},"modified":"2026-01-31T11:45:17","modified_gmt":"2026-01-31T06:15:17","slug":"eco-survey-relax-frbm-centre","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/30-01-2026\/eco-survey-relax-frbm-centre","title":{"rendered":"Eco Survey Calls for Relaxing FRBM for Centre"},"content":{"rendered":"\n<p><strong>Syllabus: GS3\/Economy<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>The Economic Survey 2025-26<\/strong> has argued in <strong>favour of a delay<\/strong> in <strong>strict fiscal targets for the Centre, <\/strong>such as those that had been set under the<strong> Fiscal Responsibility and Budget Management Act.<\/strong><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Highlights of survey on Fiscal Targets<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>After spiking to<strong> 9.2% of GDP<\/strong> during the pandemic year of <strong>2020-21,<\/strong> the <strong>Centre\u2019s fiscal deficit<\/strong> was on<strong> target<\/strong> to be<strong> 4.4%<\/strong> at the end of the current financial year, in line with <strong>commitment to halve the FY21 fiscal deficit in five years<\/strong>.<\/li>\n\n\n\n<li><strong>India lowered its general government debt-to-GDP ratio <\/strong>by about 7.1 percentage points since 2020 while continuing to maintain high levels of public investment<\/li>\n\n\n\n<li><strong>The FRBM Act\u2019s fiscal deficit target <\/strong>of<strong> 3% of GDP by March 2021<\/strong> has been <strong>repeatedly deferred by the government,<\/strong> and the Survey acknowledged that there is a \u201cperception\u201d that this target and framework must be reinstated.\n<ul class=\"wp-block-list\">\n<li>Since the FRBM Act was first enacted in <strong>2003<\/strong>, the 3% target has been achieved only once.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>In her last Budget,<\/strong> the Finance Minister had specified a new fiscal framework, under which the Centre would target<strong> bringing down its debt-to-GDP ratio to 50% with a 1% <\/strong>leeway above and below by<strong> March 31, 2031.&nbsp;<\/strong>\n<ul class=\"wp-block-list\">\n<li>The Survey has argued, it is the appropriate strategy for now, and can be revisited after this time period is over.<\/li>\n\n\n\n<li>Once this target is met, and the fiscal deficit declines gradually, <strong>then a new FRBM target could be considered.<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>State finances deteriorating: <\/strong>While praising the Centre for its fiscal prudence, the Survey however cautioned State governments against worsening finances.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background has-fixed-layout\" style=\"background-color:#ebecf0\"><tbody><tr><td><strong>The Fiscal Responsibility and Budget Management Act, 2003<\/strong><br>&#8211; The Fiscal Responsibility and Budget Management Act, 2003, was enacted with a view to <strong>provide a legislative framework for reduction of deficit of the Central Government<\/strong> to a sustainable level over a medium term.<br>&#8211;&nbsp;The rules made under the Act came into force from <strong>2004.&nbsp;<\/strong><br>&#8211; It mandates the Central Government to limit the Fiscal Deficit <strong>upto 3% of Gross Domestic Product by 31st March, 2021.&nbsp;<\/strong><br>&#8211; It further provides that the Central Government shall endeavour to limit the General Government Debt to <strong>60% of GDP and the Central Government Debt to 40% of GDP, by 31st March, 2025.&nbsp;<\/strong><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What is the fiscal deficit?<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Fiscal Deficit is defined as <strong>excess of total budget expenditure<\/strong> (revenue and capital) over total budget receipts (revenue and capital) excluding borrowings during a fiscal year.<\/li>\n\n\n\n<li>Fiscal Deficit = Total Expenditure \u2013 (Revenue Receipts + Non-Debt Creating Capital Receipts).<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Implications of fiscal deficit<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Inflationary Pressure:<\/strong> Persistently high fiscal deficits lead to inflation as governments resort to central bank-issued money to finance the deficit.<\/li>\n\n\n\n<li><strong>Crowding Out effect:<\/strong> When the government borrows a large portion of available funds from financial markets to finance its deficit, it crowds out private investment with reduced access to credit for businesses and individuals.&nbsp;<\/li>\n\n\n\n<li><strong>Reduced Fiscal Space: <\/strong>A high fiscal deficit limits the government&#8217;s ability to respond to economic shocks or crises.&nbsp;<\/li>\n\n\n\n<li><strong>Difficulty in borrowing:<\/strong> As a government\u2019s finances worsen, demand for the government\u2019s bonds begins to drop, forcing the government to offer to pay a higher interest rate to lenders.&nbsp;<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Benefits of lower fiscal deficit<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Improved Credit Ratings:<\/strong> Consistent deficit reduction enhances international credit ratings, lowering borrowing costs in global markets.<\/li>\n\n\n\n<li><strong>Reduced Debt Servicing: <\/strong>Less spending on interest payments frees funds for development projects like infrastructure, education, and healthcare.<\/li>\n\n\n\n<li><strong>Improved Balance of Payments:<\/strong> Lower reliance on foreign borrowing stabilizes the exchange rate and current account.<\/li>\n\n\n\n<li><strong>Enhanced Investor Confidence:<\/strong> Signals fiscal discipline, attracting greater foreign and domestic investments.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background has-fixed-layout\" style=\"background-color:#fff2cc\"><tbody><tr><td><strong>NK Singh committee recommendation (2016)<\/strong><br>&#8211; <strong>Debt to GDP ratio: <\/strong>The Committee suggested using debt as the primary target for fiscal policy. A debt to GDP ratio of<strong> 60%<\/strong> should be targeted with a <strong>40%<\/strong> limit for the center and <strong>20% <\/strong>limit for the states by FY23.<br>&#8211; <strong>The fiscal deficit to GDP ratio<\/strong> of <strong>2.5%<\/strong> by FY23.<br>&#8211; <strong>Fiscal Council: <\/strong>The Committee proposed to create an autonomous Fiscal Council with a Chairperson and two members appointed by the center. The role of the Council would include:<br>a. Preparing multi-year fiscal forecasts,&nbsp;<br>b. Recommending changes to the fiscal strategy,<br>c.&nbsp;Improving quality of fiscal data,&nbsp;<br>d. Advising the government if conditions exist to deviate from the fiscal target.<br>&#8211; <strong>Deviations: <\/strong>The Committee suggested that grounds in which the government can deviate from the targets should be clearly specified, and the government should not be allowed to notify other circumstances.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><strong>Source: <\/strong><a href=\"https:\/\/www.thehindu.com\/business\/budget\/economic-survey-calls-for-fiscal-flexibility-for-the-centre-cautions-states-against-worsening-finances\/article70565806.ece\/amp\/\" target=\"_blank\" rel=\"noopener\"><strong>TH<\/strong><\/a><\/p>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p><strong>Context<\/strong><\/p>\n<li class=\"ms-5\">The Economic Survey 2025-26 has argued in favour of a delay in strict fiscal targets for the Centre, such as those that had been set under the Fiscal Responsibility and Budget Management Act.<\/li>\n<p><\/p>\n<p><strong> Highlights of survey on Fiscal Targets <\/strong><\/p>\n<li class=\"ms-5\">After spiking to 9.2% of GDP during the pandemic year of 2020-21, the Centre\u2019s fiscal deficit was on target to be 4.4% at the end of the current financial year, in line with commitment to halve the FY21 fiscal deficit in five years. <\/li>\n<li class=\"ms-5\">India lowered its general government debt-to-GDP ratio by about 7.1 percentage points since 2020 while continuing to maintain high levels of public investment <\/li>\n<p><a href=\"https:\/\/www.nextias.com\/ca\/current-affairs\/30-01-2026\/eco-survey-relax-frbm-centre\" class=\"btn btn-primary btn-sm float-end\">Read More<\/a><\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-65499","post","type-post","status-publish","format-standard","hentry","category-current-affairs"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/65499","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=65499"}],"version-history":[{"count":5,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/65499\/revisions"}],"predecessor-version":[{"id":65539,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/65499\/revisions\/65539"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=65499"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=65499"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=65499"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}