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PYQ 1200 Q/A Part - 1
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Kerala PSC Indian Economy Book Study Materials Page 489
Book's First Pageli 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).