Reasons for FRBM Act, 2013 in India

Reasons for FRBM Act, 2013 in India

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The Fiscal Responsibility and Budget Management Act (FRBM Act) was introduced in India in 2013 to address some of the key economic challenges faced by the country There were several reasons behind the introduction of this act, including the need to control the rising fiscal deficit, reduce government borrowings, promote fiscal discipline, and ensure long-term macroeconomic stability.

Firstly, the introduction of the FRBM Act in 2013 aimed to tackle the issue of the growing fiscal deficit in India. The fiscal deficit occurs when the government's total expenditures surpass its revenue. This deficit leads to increased government borrowings, putting pressure on interest rates and hampering private sector investments. The FRBM Act set a target for the government to gradually reduce the fiscal deficit to a more sustainable level, which would help stabilize the economy and create a conducive environment for investment.

Secondly, the act was introduced with the objective of reducing government borrowings The government's excessive borrowing can crowd out private investments and lead to higher interest rates, negatively impacting economic growth. The FRBM Act mandated that the government gradually reduce its borrowings to curb inflationary pressures and create room for private sector investment. By reducing government borrowings, the act aimed to create a more stable and favorable investment climate in the country.

Thirdly, the introduction of the FRBM Act was aimed at promoting fiscal discipline. It mandated the government to adhere to strict fiscal targets, including limiting the overall debt and ensuring a sustainable debt-to-GDP ratio. Fiscal discipline was seen as crucial for maintaining investor confidence, as it signals the government's commitment to responsible financial management. By enforcing fiscal discipline, the act aimed to improve India's credit rating and attract foreign investments, which would contribute to the overall economic growth of the country.

Lastly, the FRBM Act intended to ensure long-term macroeconomic stability. By setting fiscal targets and promoting responsible financial management, the act aimed to prevent the accumulation of excessive debt and maintain a stable macroeconomic environment. This stability is crucial for sustainable economic growth, as it helps to curb inflation, reduce interest rates, and provide a favorable climate for both domestic and foreign investments. By ensuring long-term macroeconomic stability, the FRBM Act aimed to create an environment conducive to economic development and poverty reduction.

In conclusion, the introduction of the FRBM Act in 2013 was driven by the need to address key economic challenges faced by India. The act aimed to control the rising fiscal deficit, reduce government borrowings, promote fiscal discipline, and ensure long-term macroeconomic stability. By setting targets and enforcing responsible financial management, the act aimed to create a conducive environment for investment, boost economic growth, and improve the overall welfare of the country.