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
                                                                     40.    Ibid.
       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).