Government Notifies Amendments To FRBM Rules
The government today notified amendments to the Fiscal Responsibility and Budget Management Rules, 2004 as proposed in the Union Budget 2018-19, where it targeted bringing down the fiscal deficit to 3 percent in the next three years.
“The central government shall reduce the fiscal deficit by an amount equivalent to 0.1 percent or more of the gross domestic product at the end of each financial year beginning with the financial year 2018-19, so that fiscal deficit is brought down to not more than 3 percent of the GDP by 31st day of March, 2021,” said a gazette notification issued yesterday. The FRBM Act is aimed at maintaining the government’s spending discipline.
The Union budget for the current financial year proposes to bring down fiscal deficit to 3.3 percent, 3.1 percent and 3 percent of the gross domestic product by 2018-19, 2019-20 and 2020-21, respectively.
The government had deferred its target by two years from 2018-19, to bring down the fiscal deficit to 3 percent, and raised the target for 2017-18 to 3.5 percent from 3.2 percent earlier. This was done after the Centre’s finances came under pressure partly due to the implementation of the Goods and Services Tax. The government will account for only 11 months of revenue under GST, Finance Minister Arun Jaitley said in February.
Volatility in revenue combined with a front-loading of spending led the government to cross its budget target by November. The fiscal deficit for the first 11 months of this fiscal stood at 120 percent of the revised estimate. In the same period of the previous year, the government had hit 113 percent of the budgetary estimate.
There will be six fiscal indicators for three-year targets in the medium-term fiscal policy statement, as against four indicators currently, the notification added.
The primary deficit – fiscal deficit excluding interest payments of the government – will be an additional indicator while gross tax revenue will be replaced by tax and non-tax revenue. Thus, the six fiscal indicators in the medium-term fiscal policy statement would be as follows:
- Fiscal deficit as a percentage of GDP
- Revenue deficit as a percentage of GDP
- Primary deficit as a percentage of GDP
- Tax revenue as a percentage of GDP
- Non-tax revenue as a percentage of GDP
- Central government’s debt as a percentage of GDP
Also Read: BQ Explains: What Is Fiscal Deficit?