Definition
FRBM Act
The 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.
Enacted in 2003, the FRBM Act institutionalised fiscal prudence in India by requiring the government to limit its fiscal deficit and progressively reduce debt, and to lay statements before Parliament explaining its fiscal strategy. It was meant to stop governments from running open-ended deficits to fund populist spending.
The Act includes an escape clause allowing the targets to be breached in exceptional situations such as war, calamity or a sharp growth collapse — invoked, for example, during the pandemic. An FRBM Review Committee later recommended shifting the anchor toward a debt-to-GDP path rather than a single deficit number.
Related terms
- Primary DeficitThe primary deficit is the fiscal deficit minus interest payments on past borrowings, showing the borrowing the government would need even if it had no legacy debt to service.
- 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.