Reviewing the Fiscal Responsibility and Budget Management Act: The Role of the FRBM Review Committee

The Fiscal Responsibility and Budget Management Act (FRBMA) 2003 has been a cornerstone of India's economic policy framework for over a decade. However, a thorough review was initiated in 2016 to assess its effectiveness and relevance in light of contemporary global economic developments. This article discusses the formation of the FRBM Review Committee and its key findings, providing valuable insights into the challenges faced and the future roadmap for India's fiscal management.

The Formation of the FRBM Review Committee

In the budget session of February 2016–17, the then Finance Minister, Mr. Arun Jaitley, announced the formation of the FRBM Review Committee to address the evolving economic landscape. This review committee was established to evaluate the FRBM Act 2003, which had been in place for the last 12 years. The primary aim was to reassess its functionality and recommend changes to align with the dynamic global economic environment.

The Composition of the Committee

The committee was a five-member panel comprising distinguished individuals with a wealth of experience in finance, economics, and public administration:

N.K. Singh: Former Revenue Secretary and Secretary to the Prime Minister of India. He brought with him extensive experience in public finance and budgeting. Sumit Bose: Former Finance Secretary, contributing his expertise in fiscal policies and economic management. Arvind Subramanian: Chief Economic Advisor, providing strategic insights and economic analysis. Urjit Patel: RBI Governor, ensuring the committee's recommendations were in line with the Reserve Bank of India's stance and objectives. Rathin Roy: Director at the National Institute of Public Finance and Policy, bringing a fresh perspective on public finance and budget management.

Terms of Reference and Scope of Review

The FRBM Review Committee was tasked with a comprehensive review of the existing FRBM Act. Its terms of reference (ToR) were broad and wide-ranging, covering several critical areas:

To comprehensively review the existing FRBM Act in light of contemporary changes and past outcomes. To analyze global economic developments and best international practices. To recommend a future fiscal framework and a roadmap for the country.

Key Findings and Recommendations

The committee's deliberations revealed several critical insights into the challenges and opportunities in India's fiscal management:

Challenges Identified

Economic Inertia: The changing economic landscape necessitated updating the existing policy framework. Public Debt: The rising public debt levels posed a significant challenge to fiscal prudence. Inflation Management: Effective inflation control required a refined and robust fiscal policy.

Recommendations for the Future

Enhanced Fiscal Discipline: The committee emphasized the need for improved fiscal discipline and transparency. This included introducing mechanisms for better monitoring and enforcement of fiscal rules. Sustainable Debt Management: A sustainable approach to public debt management was recommended. This entailed identifying optimal times for borrowing and leveraging international best practices. Fiscal Rules Reform: The committee suggested refining fiscal rules to ensure they remain relevant and effective. This included aligning fiscal targets with economic realities and enhancing flexibility within the framework.

Conclusion

The FRBM Review Committee's comprehensive review has provided valuable insights and recommendations for the future of India's fiscal management. As the country continues to navigate the complexities of economic policy, these recommendations will be instrumental in shaping the fiscal framework for the coming years. The review underscores the need for continuous assessment and adaptation in line with changing economic conditions to ensure sustainable and robust economic growth.