PUBLIC FINANCE ASSIGNMENT

ON THE TOPIC

THE FRBM ACT AND

THE BUDET 2020-21
MADE BY :-
ADITYA MISHRA
B.COM IIIrd Year “E”
ECONOMICS
 CONTENTS
THE FRBM ACT
 INTRODUCTION
 RELATED TERMS
 OBJECTIVES
 AMMENDMENTS
 FEATURES
 ENACTMENT OF ACT IN INDIA

UNION BUDGET 2020-21

 INTRODUCTION
 KEY HIGHLIGHTS OF THE BUDGET
THE FISCAL RESPONSIBILITY
AND
BUDGETMANAGEMENT(FRBM)
ACT
 INTRODUCTION
Fiscal Responsibility and Budget Management Act (FRBM Act) was introduced in
Parliament as the FRBM Bill in December 2000. It seeks to foster fiscal discipline on the
Central Government and achieving a balanced budget with effective revenue management.
The Act was passed on August 26, 2003, therefore it is also called Fiscal Responsibility
and Budget Management Act (FRBMA), 2003. FRBMA was brought into effect from July
5, 2004.

It was introduced in India by the then Finance Minister of India, Mr Yashwant Sinha in
December 2000.
 RELATED TERMS
1. Revenue Deficit (RD):- It is the difference between revenue expenditure and
revenue receipts.
2. Effective Revenue Deficit (ERD):- It is the difference between revenue
deficit and grants to states for creation of capital assets.
3. Fiscal Deficit (FD):- It is the difference of total expenditure of government
and total receipts excluding borrowings.
4. Gross Fiscal Deficit (GFD):- It is the excess of total expenditure including
loans net of recovery over revenue receipts (including external grants) and non-
debt capital receipts
5. Primary Deficit (PD):- It is the fiscal deficit minus the interest payments.
 RELATED TERMS
1. Revenue Deficit (RD):- It is the difference between revenue expenditure and
revenue receipts.
2. Effective Revenue Deficit (ERD):- It is the difference between revenue
deficit and grants to states for creation of capital assets.
3. Fiscal Deficit (FD):- It is the difference of total expenditure of government
and total receipts excluding borrowings.
4. Gross Fiscal Deficit (GFD):- It is the excess of total expenditure including
loans net of recovery over revenue receipts (including external grants) and non-
debt capital receipts
5. Primary Deficit (PD):- It is the fiscal deficit minus the interest payments.
 OBJECTIVES
 The FRBM Act aims to introduce transparency in India's fiscal management systems. The Act’s long-term
objective is for India to achieve fiscal stability and to give the Reserve Bank of India (RBI) flexibility to deal with
inflation in India. The FRBM Act was enacted to introduce more equitable distribution of India's debt over the
years.
 FRBM Act Targets :-
1. Reduction and Elimination of revenue deficit by 2008-09
2. Thereafter build up adequate revenue surplus
3. Reduction of fiscal deficit to no more than 3 per cent of GDP at the end of 2008-09
4. Reduce the Gross Fiscal Deficit (GFD) by March 31, 2008
 The Central government shall lay in each financial year before both houses of Parliament the following statements
of fiscal policy along with the annual financial statement and demands for grants:-
1. The Medium-term Fiscal Policy Statement
2. The Fiscal Policy Strategy Statement
3. The Macro-Economic Framework Statement
4. FRBM Act Exemptions
 AMMENDMENTS
 FRBM Rules 2004 :-
To bring down the GFD to not more than 3 per cent of GDP at end of March 31, 2008. To achieve this target of GFD the
Central Government shall reduce the GFD by an amount equivalent to 0.3 percent or more of GDP at end of each financial
year beginning with financial year 2004-05.To achieve target of RD by March 31, 2008, Central government shall reduce
RD by an amount equivalent to 0.5 percent or more of GDP at end of each financial year, beginning with 2004-05.The
Central government shall not give guarantees aggregating to an amount exceeding 0.5 percent of GDP in any financial
year beginning with financial year 2004-05.
 FRBM Rules 2013:-
It introduced two changes, they are following :-
1. Effective Revenue Deficit :-
The concept of effective revenue deficit was introduced which states that
effective revenue deficit = revenue deficit – grants to states for creation of
capital assets.
2. Medium Term Expenditure Framework Statement:-
Medium-term framework provides for rolling targets for expenditure, imparting greater certainty, and encourages
prioritization of expenditure.To bring down the GFD to not more than 3 per cent of GDP at the end of March 31, 2017. To
achieve this target of GFD, Central Government shall reduce the GFD by an amount equivalent to 0.5 percent or more of
GDP at end of each financial year beginning with financial year 2013- 14.
 FRBM Act Amendment 2015 :-
1. GFD not more than 3 per cent of GDP at end of March 31, 2018 with annual reduction by an amount
equivalent to 0.4 per cent or more of GDP at end of each financial year beginning with Financial Year 2015-16
2. RD of not more than 2 percent of GDP by March 31, 2018 with annual reduction by an amount equivalent to
0.4 per cent or more of GDP at the end of each financial year beginning with Financial Year 2015-16.
3. In order to achieve target of effective revenue deficit by March 31, 2018, Central Government shall reduce
such deficit by an amount equivalent to 0.5 per cent or more of GDP at end of each financial year, beginning
with financial year 2015-2016
4. Budget 2018-19:-
The central government shall reduce the fiscal deficit by an amount equivalent to 0.1 percent or more of the
gross 2 domestic product at the end of each financial year beginning with the financial year 2018-19, so that fiscal
deficit is 4 4 brought down to not more than 3 percent of the GDP by 31st day of March, 2021.
5. It proposed to bring down fiscal deficit to 3.3 percent, 3.1 percent and 3 percent of the gross domestic
product 5 by 2018-19, 2019-20 and 2020-21.
The government formed the committee to review the FRBM Act, 2003 to suggest changes in the act. The
committee was headed by Mr. N K Singh (politician, economist and former Indian Administrative Service officer).
FEATURES OF THE FRBM ACT
 The FRBM Act States that the Central Government shall not borrow from RBI except by way of means and
advances to meet temporary excess of cash disbursements over cash receipts.
 The revenue and fiscal deficit may exceed the targets specified in Rules only on grounds of national security or
national calamity or such other exceptional grounds as the Central Government may specify.
 The Central Government should place in each financial year before houses of Parliament three statements-Medium
Term Fiscal Policy Statement; Fiscal policy strategy statement; Macro-economic Framework statement along with
Annual Financial Statement and Demands for grants.
 The revenue deficit should be reduced to an amount equivalent by 0.5% or more of GDP every year, beginning
with the financial year 2004-05 and eliminate revenue deficit by March, 2009,
 The fiscal deficit should be reduced by 0.3% or more of the GDP every year, beginning with the financial year
2004-05and bringing it down to 3% of GDP by March 2009.
 The Central Government should not provide guarantees in excess of 0.5% of GDP in any financial year, beginning
with 2004-05.
 The Central Government should not assume additional liabilities in excess of 9% of GDP for financial year 2004-
05 and progressive reduction of this limit by at least 1 % point of GDP in each subsequent year.
 The RBI should not subscribe to primary issues of Central Government securities from the year 2006-07.
 ENACTMENT OF ACT IN INDIA
 The Fiscal Responsibility and Budget Management Bill (FRBM Bill) was introduced in India by the then
Finance Minister of India, Mr.Yashwant Sinha in December 2000.
 Firstly, the bill highlighted the terrible state of government finances in India both at the Union and the state
levels under the statement of objects and reasons.
 Secondly, it sought to introduce the fundamentals of fiscal discipline at the various levels of the government .
 The FRBM bill was introduced with the broad objectives of eliminating revenue deficit by 31 March 2006,
prohibiting government borrowings from the Reserve Bank of India three years after enactment of the bill,
and reducing the fiscal deficit to 2% of GDP (also by 31 March 2006).
 Further, the bill proposed for the government to reduce liabilities to 50% of the estimated GDP by year 2011.
There were mixed reviews among economists about the provisions of the bill, with some criticising it as too
drastic.
 This bill was approved by the Cabinet of Ministers of the Union Government of India in February, 2003.
 It became effective on 5 July 2004. This would serve as the day of commencement of this Act.
UNION BUDGET
2020-21
 INTRODUCTION
The Union Budget of India for 2020–2021 was presented by the Finance Minister, Mrs.
Nirmala Sitharaman on the 1st of February 2020, as her second budget. This is the second
budget of Narendra Modi led NDA government's second term . The Economic Survey for 2019-
2020 is released on 31 January 2020, a day before the budget. Before the budget speech the report
of the 15th Finance Commission was tabled by the Finance Minister.
The central ideas of the Budget are - "Aspirational India, Economic development, A Caring
Society." These three broad themes are connected by governance that is corruption free and a
financial sector that is clean and sound .
At 2 hours and 41 minutes, the budget speech was the longest ever delivered by a Finance Minister
of India. Nirmala Sitharaman is also only the second woman to present the budget for a second time
after Indira Gandhi.
 HIGHLIGHTS OF THE BUDGET 2020-21
1. TAXATION :-
• INCOME TAX :-
a. Significant relief to middle class taxpayers.
b. New and simplified personal income tax regime proposed:-
c. New regime to entail estimated revenue forgone of Rs. 40,000 crore per year.
 Corporate Tax:
a. Tax rate of 15% extended to new electricity generation companies.
b. Indian corporate tax rates now amongst the lowest in the world.
 Dividend Distribution Tax (DDT):
a. DDT removed making India a more attractive investment destination.
b. Deduction to be allowed for dividend received by holding company from its subsidiary.
c. Rs. 25,000 crore estimated annual revenue forgone.
 Start-ups:
a. Start-ups with turnover up to Rs. 100 crore to enjoy 100% deduction for 3 consecutive
assessment years out of 10 years.
b. Tax payment on ESOPs deferred.
 INDIRECT TAX:-
GST AND CUSTOM DUTY
a. Cash reward system envisaged to incentivise customers to seek invoice.
b. Simplified return with features like SMS based filing for nil return and improved input tax credit flow to be implemented
from 1st April, 2020 as a pilot run.
c. Dynamic QR-code capturing GST parameters proposed for consumer invoices.
d. Aadhaar based verification of taxpayers being introduced to weed out dummy or non-existent units.
e. GST rate structure being deliberated to address inverted duty structure.
f. Customs duty raised on footwear to 35% from 25% and on furniture goods to 25% from 20%.
g. Basic customs duty on imports of news print and light-weight coated paper reduced from 10% to 5% .

2. Defence gets Rs 3.37 lakh crore as the defence budget

3. Rs 2.83 lakh crore to be allocated for the 16 Action Points; Rs 1.6 lakh crore allocated to agriculture and irrigation;
Rs 1.23 lakh crore for Rural development and Panchayti Raj.

4. Rs 4,400 crore for clean air; Rs 53,700 crore for ST schemes; Rs 85,000 crore for SC, OBCs schemes; Rs 28,600 for
women specific schemes; Rs 9,500 crore for senior citizen schemes.

5. Rs 30,757 crore rupees for Union Territory of J&K; Rs 5,958 crore rupees for Union Territory of Ladakh.
6. Infrastructure:-
 Rs.100 lakh crore to be invested on infrastructure over the next 5 years.
 National Infrastructure Pipeline:
a. Rs. 103 lakh crore worth projects; launched on 31st December 2019.
b. More than 6500 projects across sectors, to be classified as per their size and stage of development.
 A National Logistics Policy to be released soon:-
a. To clarify roles of the Union Government, State Governments and key regulators.
b. A single window e-logistics market to be created .
c. Focus to be on generation of employment, skills and making MSMEs competitive.
 Infrastructure agencies of the government to involve youth-power in start-ups.
 Rs.1.7 lakh crore proposed for transport infrastructure in 2020-21.
7. Agriculture:-
a. Agriculture market needs to be liberalised; govt proposes to handhold farmers, says FM
b. Comprehensive measures for 100 water-stressed districts being proposed
c. PM KUSUM scheme will be expanded to 20 lakh farmers.
d. Government will help 20 lakh farmers for setting up solar pumps; Farm market will to be liberalized.
e. Another 15 lakh farmers to be helped to solarise their grid-connected pump sets.
d. Scheme to enable farmers to set up solar power generation capacity on their fallow/barren lands and to sell it to the grid.
8. Economic Development:-
Industry, Commerce and Investment
 Rs. 27,300 crore allocated for 2020-21 for development and promotion of Industry and Commerce.
 Investment Clearance Cell proposed to be set up:
a. To provide “end to end” facilitation and support. To work through a portal.
b. Five new smart cities proposed to be developed.
c. Scheme to encourage manufacture of mobile phones, electronic equipment and semi-conductor packaging proposed.
 National Technical Textiles Mission to be set up:
a. With four-year implementation period from 2020-21 to 2023-24.
b. At an estimated outlay of Rs 1480 crore.
c. To position India as a global leader in Technical Textiles.
 New scheme NIRVIK to be launched to achieve higher export credit disbursement, which provides for:
a. Higher insurance coverage
b. Reduction in premium for small exporters
c. Simplified procedure for claim settlements.
 Turnover of Government e-Marketplace (GeM) proposed to be taken to Rs 3 lakh crore.
 Scheme for Revision of duties and taxes on exported products to be launched.
a. Exporters to be digitally refunded duties and taxes levied at the Central, State and local levels, which are otherwise
not exempted or refunded.
 All Ministries to issue quality standard orders as per PM’s vision of “Zero Defect-Zero Effect” manufacturing.
9. Tourism;
Five archaeology sites to be developed for world-class museums :-
1. Rakhigarhi (Haryana)
2. Hastinapur (Uttar Pradesh)
3. Shivsagar (Assam)
4. Dholavira (Gujarat)
5. Adichanallur (Tamil Nadu)

Rs 2,500 crore for tourism promotion.

* An Indian Institute of Heritage and Conservation under Ministry of Culture proposed; with the status of a deemed
University.

* 4 more museums from across the country to be taken up for renovation and re-curation.

*Rs.3150 crore proposed for Ministry of Culture for 2020-21.

* Maritime museum to be set up at Lothal- the Harrapan age maritime site near Ahmedabad, by Ministry of Shipping.
SOME FIGURES RELATED TO BUDGET