BUDGET MANAGEMENT ACT, 2003

LITERATURE REVIEW:
Chelliah (2004) observed the Task Force (TF) Report, 2004 attempted to tackle
implementation of FRBMA through a revenue-led effort. While the TF report suggested that
revenue deficit should be reduced to zero by increasing revenues, it failed to consider the
fiscal deficit could still be high. It was also suggested that debt dynamics should factor in
implementation scheme of FRBMA. Finally, base scenario adopted by TF, assumed ‘business
as usual’ as status quo, which, as a critique, cannot be considered.
Lalvani (2009) argued despite focus on growth proceeding any implementation of fiscal rules
(given the 2008 financial crisis), structure and direction of expenditure have failed to abide
by targets even when growth targets were met. A set of “Second Generation Fiscal Rules”
that would take current inadequacies into consideration and consolidate on the experience
with the fiscal rules since 2004 would be beneficial. A suggestion to give powers to
Comptroller and Auditor General to act as a Fiscal Council for better enforcement of rules
was also made. In opposition to implementation of fiscal rules, EPW Research Foundation
(2009) argued that fiscal constraints have overburdened the monetary policy and banking
sector, to encourage create a stimulus package for the economy due to extraordinary
circumstances, because of financial crisis of 2008.
The FRBMA was intended to be a mechanism for the government to control its deficits since
it was believed as all such imbalances were indeed a major cause of fiscal irresponsibility,
deficit spending, spillover through monetary policy, and greater rising prices. The
government has been trying to increase monetary capacity by selling investments and cutting
spending, particularly on capital goods. The effect of this debt containment on the nation's
public policy paradigm was evaluated by CBGA in 2007. Khan (2014) noted that perhaps the
FRBMA had averted conflicts of interests in monetary policy and debt management by
forbidding RBI from taking part in key government securities auctions, demonstrating how
fiscal regulations had made headway into debt management and monetary policy.
As per Dholakia (2014), the Central Govt looked recently to map out a roadmap for fiscal
reduction and hit the FRBMA's updated objectives. A compelling argument is made by
Mohapatra (2014) that the budget deficit must be reduced in relative terms as well as a
proportion of GDP because doing so can help achieve the desired goals.
Given the absence of such a framework with incentives for attaining the objectives, FRBMA
has drawbacks (Buiter and Patel, 2012). The government must always be held to its standard
size budgetary plan by new regulations of the FRBMA kind, but they should also provide the
administration latitude in trying times. The researchers came to the conclusion that India's
macroeconomic management might include through this an opportunity system that
encourages and penalises overall fiscal competence of both the Centre and states.