Centre to amend FRBM Act to normalize fiscal gap

COVID-19 has overridden the financial fiscal focus but the upcoming budget is likely to consolidate the path to normalize fiscal deficit. The centre is focusing on to bring the fiscal deficit down to 4% of GDP by 2025-26 from the expected fiscal deficit of 7-8% of GDP in 2020-21.

This means that the Budget projection of 3.5% of GDP won’t be held in high regard. The FRBM came into effect in 2003 and since then the medium target has never been met. The centre seeks a modification in the Fiscal Responsibility and Budget Management Act (FRBM) through the Finance Bill, 2021.

“We will be mindful that this year additional borrowing has been done and therefore we need to focus on a fiscal return path and normalise the levels of borrowings in the next 2-3 years. It is important to have a timeline to return to the consolidation path,” said an official.

Union Finance Minister Nirmala Sitharaman has been urged to relax the fiscal consolidation for the next few years by the industry and economists of the nation. She exclaimed that the budget of 2021 will be a humongous push towards the public sector investment and expenditure, at the same time, focusing on infrastructure and health care systems.

A fiscal deficit occurs when the government expenditure exceeds government revenue. It is calculated in absolute terms and also with respect to the Gross Domestic Product (GDP) of the country.

Moneycontrol reported that the relaxed fiscal roadmap for the Centre possibly has been suggested by the Fifteenth Finance Commission keeping in mind the current pandemic situation.

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