Definition
Escape Clause (FRBM)
The escape clause is the provision in the FRBM framework that lets the government temporarily breach fiscal deficit targets during specified exceptional circumstances.
Rigid deficit rules can be harmful in a genuine crisis. The FRBM Act's escape clause allows the government to exceed its fiscal deficit target by a defined margin in situations such as national security threats, calamities, structural reforms with fiscal implications, or a sharp decline in real output growth.
Invoking the clause requires the government to explain the reasons to Parliament and chart a path back to the target. It was used during the pandemic, when the deficit widened sharply, illustrating how the clause builds flexibility into an otherwise rules-based framework.
Related terms
- FRBM ActThe Fiscal Responsibility and Budget Management Act is the law that commits the central government to fiscal discipline by setting targets for deficits and public debt.
- Fiscal ConsolidationFiscal consolidation is the process of reducing the government's fiscal deficit and debt over time through higher revenues or lower spending growth.
- Fiscal DeficitThe fiscal deficit is the gap between the government's total spending and its total revenue, showing how much it must borrow in a year.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.