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    Question

    Which of the following is a primary objective of the

    'Fiscal Responsibility and Budget Management (FRBM) Act' in India?
    A To increase tax rates Correct Answer Incorrect Answer
    B To eliminate fiscal deficit Correct Answer Incorrect Answer
    C To impose limits on fiscal deficits and public debt Correct Answer Incorrect Answer
    D To mandate higher social sector spending Correct Answer Incorrect Answer
    E To promote foreign direct investment Correct Answer Incorrect Answer

    Solution

    • The FRBM Act, enacted in 2003, is a legal framework for  fiscal consolidation . Its primary objectives are to ensure:
      • Inter-generational equity in fiscal management.
      • Long-term macroeconomic stability.
        To achieve this, the Act (and its subsequent rules) mandate the central government to set and adhere to  specific limits for key deficit indicators  -- notably the Fiscal Deficit and the Revenue Deficit -- as a percentage of GDP. It also sets targets for reducing public debt. The goal is not necessarily to eliminate the deficit but to bring it down to prudent, sustainable levels.

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