Fiscal Deficit, FRBM Act & Sovereign Debt
Fiscal policy in India governs government revenues, public expenditure, and sovereign borrowing to promote economic growth while ensuring macroeconomic stability. Key fiscal indicators include the Revenue Deficit (excess of revenue expenditure over revenue receipts), Fiscal Deficit (total borrowing requirement of the government), and Primary Deficit (fiscal deficit minus interest payments). To enforce long-term fiscal discipline, Parliament enacted the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, establishing statutory targets to eliminate revenue deficits and cap the fiscal deficit at 3 percent of Gross Domestic Product (GDP). In 2017, the N.K. Singh FRBM Review Committee recommended shifting the fiscal anchor to general government debt, targeting a combined sovereign debt ratio of 60 percent of GDP (40% for the Centre and 20% for the States).
Key Concepts & Examination Highlights
- Fiscal Deficit represents the total borrowing requirements of the government: Total Expenditure minus (Revenue Receipts + Non-debt Capital Receipts).
- Primary Deficit is calculated as Fiscal Deficit minus Net Interest Payments on sovereign debt.
- The FRBM Act was enacted in 2003 under the Atal Bihari Vajpayee government to institutionalize fiscal discipline.
- The N.K. Singh FRBM Review Committee (2017) recommended a General Government Debt-to-GDP target of 60% (40% Centre, 20% States).