li inan e in ndia 18.17
are supposed to be one big factor for ensures that national resources are allocated in
rising government expenditure. We see terms of their defined priorities through the tax
this on a higher scale if there is a probable transfer mechanism.
mid-term election or closer to a general Unproductive government expenditures, tax
election. distortions and high deficits are considered to have
(ii) Institutional factor: The administrative constrained the Indian economy from realising
size combined with the processes of its full growth potential. At the begining of the
reporting, accounting, supervising and fiscal reforms in 1991, the fiscal imbalance was
monitoring getting greater importance identified as the root cause of the twin problems
than the production and delivery of of inflation and the difficult balance of payments
goods and services.38 (BoPs) position.39 Since then the medium-term
(iii) Ethical factor: This is a more powerful fiscal policy stance of the government has been
factor as it easily generates wide public on the following lines:40
support for the government expenditure. (i) reducing the deficits (revenue and fiscal);
There are many heads of such expenditures
(ii) prioritising expenditure and ensuring
such as subsidies (food, power, fertilizer,
that these resulted in intended outcomes;
irrigation, etc.) poverty alleviation
programmes, employment generation and
programmes, education, health and social (iii) augumenting resources by widening tax
services. The logic for such expenditure base and improving tax-compliance while
comes from the idea that the government maintaining moderate rates.
should function as protector of the poor The fiscal consolidation which followed in
and provider of jobs for them implying 1991 failed to give the desired results as there
that such government expenditures was no defined mandate for it. Neither was there
benefit the poor. any statutory obligation to do so.41 This is why
It was in 2000 that the double menace the Fiscal Reforms and Budget Management
of revenue and fiscal deficits got attention Act (FRBMA) was enacted on 26 August, 2003
from the government at the Centre and some to provide the support of a strong institutional/
constitutional/statutory safeguards looked statutory mechanism. Designed for the purpose
necessary. Consequently, the Fiscal Responsibility of medium-term management of the fiscal deficit,
and Budget Management Bill, 2000 was proposed the FRBMA came into effect on 5 July, 2004.
in the Parliament. The FRBM Bill, 2000 was passed by the
Parliament with all political parties voting in
frbm Act, 2003
favour, and is considered a watershed in the area
The fiscal policy of an economy has been considered of fiscal reforms in the country. Main highlights of
as the building block for enabling macro- the FRBMA, 2003 are as given below:42
environment by economists, policymakers and
the IMF, alike. It does not only provide stability 39. Ministry of Finance, Economic Survey 2006–07, (New
Delhi: Government of India, 2007), p. 18.
and predictability to the policy regime, but also
38. this factor seems getting redressal with the starting 41. Ibid.
of outcome and performance budgeting 2004–05 42. Ministry of Finance, Economic Survey 2003–04, (New
onwards. Delhi: Government of India, 2004).