Why in the News?
Recently, Comptroller and Auditor General of India (CAG's) report has highlighted several fiscal inconsistencies and transparency issues in the government's compliance with the FRBM Act.
About FRBM Act, 2003
- Purpose: The FRBM Act, 2003, was enacted to foster inter-generational equity in fiscal management and ensure long-term macroeconomic stability.
- The Act aims to guide the central government's fiscal policy towards a sustainable path, thereby promoting economic stability and responsible financial governance.
- A key mandate of the Act is that the CAG must conduct an annual compliance review of its provisions.
- FRBM Act mandates the following statements to be laid before the Parliament along with the Budget:
- Macro-economic Framework Statement.
- Medium Term Fiscal Policy Statement.
- Fiscal Policy Strategy Statement.
Key Targets under FRBM Act
Parameter | Target | Deadline | Current Ratio as of 2023-24 (CAG Report) |
Fiscal deficit (original FRBM) | 3% of GDP | 31st Mar 2021 | 5.32% |
Debt limits | General Govt (Centre + State) ≤ 60% of GDP; Central Govt ≤ 40% of GDP | End of FY 2024–25 | Central Govt: 57% General Govt: 81.3% |
Revised fiscal consolidation path | < 4.5% of GDP fiscal deficit | FY 2025–26 | |
Additional guarantees (against Consolidated Fund of India) | ≤ 0.5% of GDP in any year | Annual cap | |
The targets for Revenue and Effective Revenue Deficit were removed by the 2018 Amendment to the FRBM Act. | |||
Key Findings of the CAG Report
- Central Government Debt Trends:
- Debt-to-GDP Ratio: The central government debt as a ratio of GDP peaked significantly during the pandemic, reaching 61.38% in FY 2020-21.
- However, it has since shown a moderating trend, declining to 57% as of March 2024.
- A high debt-to-GDP ratio is undesirable, as a higher ratio indicates a higher risk of default.
- Debt Sustainability: A positive signal was acknowledged regarding debt sustainability, with the debt sustainability analysis indicator being positive in 2022-23 and FY24, indicating stability.
- Debt-to-GDP Ratio: The central government debt as a ratio of GDP peaked significantly during the pandemic, reaching 61.38% in FY 2020-21.
- Interest Payments to Revenue Receipts: This ratio, considered an important indicator of the government's fiscal health and fiscal strain, rose marginally to 35.35% in 2022-23 after declining from a peak of 38.66% in 2020-21.
- Compliance with Guarantee Limits: This remained within the legal ceiling of 0.5% of GDP in 2022-23, indicating compliance.
- Unrealized Tax Revenues: The report revealed a significant amount of tax revenue raised but not realized, which surged to ₹21.30 trillion by the end of 2022-23.
- A large portion of this unrealized amount was not under dispute, suggesting potential issues in tax enforcement or recovery processes.
- Discrepancies in Deficit Figures: Variations have been seen in estimates for fiscal deficit, revenue deficit (currently 2.54%), primary deficit (1.66% currently), and especially in non-tax revenue estimates.
- The fiscal deficit figure in the Union Government Finance Accounts (UGFA) for 2022-23 differed from the figure cited in the Budget at a Glance (BAG) for 2024-25.
- Such discrepancies raise questions about the consistency of key fiscal indicators.
Conclusion
The need of the hour is to enhance transparency, tax recovery and improving fiscal management practices. By working on this, the government can bolster its fiscal credibility, ensure greater accountability, and reinforce the objectives of the FRBM Act to maintain sound fiscal health and macroeconomic stability.
Know the terms
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