UPSC Prelims 2010 Q26: Indian Economy – Fiscal Policy & Budget
- (a) Elimination of revenue deficit by the end of the fiscal year 2007 - 08
- (b) Non - borrowing by the Central Government from Reserve Bank of India except under certain circumstances
- (c) Elimination of primary deficit by the end of the fiscal year 2008 - 09
- (d) Fixing government guarantees in any financial year as a percentage of GDP
Answer: (c) Elimination of primary deficit by the end of the fiscal year 2008 - 09
Explanation
What the FRBM Act, 2003 did NOT stipulate
The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 set specific fiscal discipline targets for the Union Government.
| Option | Verdict | Reason |
|---|---|---|
| (a) Eliminate revenue deficit by FY 2007-08 | Is stipulated | The Act's original target did include eliminating the revenue deficit by this date |
| (b) No RBI borrowing except under certain circumstances | Is stipulated | The Act restricted the Central Government from borrowing directly from the RBI, with limited exceptions |
| (c) Eliminate primary deficit by FY 2008-09 | NOT stipulated | The FRBM Act's targets were framed around the revenue deficit and fiscal deficit, not a specific primary-deficit elimination target by this date — this is the odd one out |
| (d) Fix government guarantees as a % of GDP | Is stipulated | The Act did include a cap on government guarantees relative to GDP |
FRBM Act, 2003 targets:
| Point | Detail |
|---|---|
| Revenue deficit | Target: eliminate by FY 2007-08 |
| RBI borrowing | Restricted, with exceptions |
| Guarantees | Capped as a % of GDP |
| Primary deficit | No such specific elimination target was stipulated |
Answer: (c) Elimination of primary deficit by the end of the fiscal year 2008-09.
Why each option is right or wrong
- (a) Incorrect. Revenue deficit elimination by 2007-08 was indeed a stipulated FRBM target.
- (b) Incorrect. Restricting RBI borrowing by the Centre was indeed part of the Act's provisions.
- (c) CORRECT. The FRBM Act did not set a specific target for eliminating the primary deficit by 2008-09; its focus was the revenue and fiscal deficits.
- (d) Incorrect. Capping government guarantees as a percentage of GDP was indeed a stipulated provision.
Key point
The FRBM Act, 2003 targeted eliminating the REVENUE deficit (by 2007-08), restricting RBI borrowing, and capping guarantees as a % of GDP — it did NOT set a specific primary-deficit elimination target.
Remember
FRBM Act, 2003: targeted revenue deficit elimination, RBI borrowing restrictions, and guarantee caps — NOT a specific primary deficit elimination target.
Common mistakes
- Confusing the Act's revenue deficit target with a separate, non-existent primary deficit elimination target.
- Not knowing the Act's RBI borrowing restriction provision.
- Missing the guarantee-cap provision as a genuine FRBM feature.
Exam tip
FRBM Act's core target = revenue deficit elimination (2007-08), not primary deficit. A specific, examinable distinction.
Sources
- Fiscal Responsibility and Budget Management Act, 2003
- Ministry of Finance, Government of India — Fiscal Responsibility and Budget Management Rules, 2004