UPSC Prelims 2006 Q24: Indian Economy – Fiscal Policy & Budget
Which one of the following statements is correct?
Fiscal Responsibility and Budget Management Act (FRBMA) concerns
- (a) fiscal deficit only
- (b) revenue deficit only
- (c) both fiscal and revenue deficit
- (d) neither fiscal deficit nor revenue deficit
Answer: (c) both fiscal and revenue deficit
Explanation
Scope of the FRBM Act
The Fiscal Responsibility and Budget Management Act (FRBMA), 2003 commits the Centre to fiscal discipline.
| Target | Coverage |
|---|---|
| Revenue deficit | To be eliminated, i.e. revenue balance achieved |
| Fiscal deficit | To be reduced to 3% of GDP |
| Transparency | Medium-term fiscal policy statements placed before Parliament |
Because the Act sets targets for both the revenue deficit and the fiscal deficit, it concerns both.
Answer: (c) both fiscal and revenue deficit.
Why each option is right or wrong
- (a) Incorrect. The Act covers more than fiscal deficit; it also targets the revenue deficit.
- (b) Incorrect. The Act covers more than revenue deficit; it also sets a fiscal deficit target.
- (c) CORRECT. FRBMA targets elimination of the revenue deficit and reduction of the fiscal deficit.
- (d) Incorrect. Deficit reduction is the core purpose of the Act.
Key point
The FRBM Act targets elimination of the revenue deficit and reduction of the fiscal deficit to 3% of GDP.
Remember
FRBMA concerns both fiscal and revenue deficit.
Common mistakes
- Assuming the Act concerns only the fiscal deficit.
- Confusing revenue deficit with fiscal deficit.
- Forgetting the 3% of GDP target.
Exam tip
FRBM: revenue deficit to zero, fiscal deficit to 3% of GDP.
Sources
- Fiscal Responsibility and Budget Management Act, 2003
- Ministry of Finance, Government of India — Fiscal Responsibility and Budget Management Rules, 2004