Impact of frbm act 2003 on levels and composition of expenditure of government of india: an evaluation and policy implication

Subramanya A and Nithyananda N

In recent decades, most of developed and developing countries embarked upon rule based fiscal policy framework to achieve fiscal prudence and India is not exception to it. The fiscal prudence has direct and positive relationship with sustained economic growth and macro economic stability. Hence, the government of India enacted rule based fiscal policy named as Fiscal Responsibility and Budget Management Act in 2003. The main purpose of act is to reduce Gross Fiscal Deficit and Gross Revenue Deficit. Thus, Union government set up expenditure reform commission to reduce public expenditure with out affecting social sector expenditure. However, after global financial crisis, Government introduced various stimulus packages to revive economic from global shock and that cause to further deterioration in the fiscal health of nation. This situation compelled Union and State Government to reduce capital expenditure particularly on social sector development. It is clearly evidenced from various studies, the negligence of social sector expenditure may provide temporary solution to improve fiscal health, but it damages to over all economic growth and ultimately affect fiscal health of nation. In this context, this paper seeks to evaluate expenditure performance of Union Government particularly under FRBM Regime. Also make comparative analysis of expenditure of union government during pre and post FRBM Act by using RBI published time series data covering period from 1975-76 to 2014-15. The study finally pointed out that neither fiscal consolidation nor FRBM Act effective in controlling revenue expenditure of government of India. Thus, the study suggest government of India to set up expenditure management committee for evaluate and restructure composition of public expenditure to reduce negative impact of fiscal consolidation rules on social sector development while adhering fiscal target

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