The Macro Economic Framework Statement

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The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 and the Fiscal Responsibility and Budget Management Rules, 2004 made under Section 8 of the Act have come into force with effect from 5th July, 2004. In sync with the changed Macro-economic circumstances after Global Financial Crisis, the FRBM (Amendment) Act, 2012 was passed by the Parliament and got the assent of the President of India on 28.05.2012. Accordingly, revised targets were set for various Fiscal Indicators. New Rules under the Amended FRBM Act, 2012 were notified on May, 2013.

In compliance with the relevant provisions of the said Act and Rules, the Central Government is required to lay before the Houses of Parliament, Macro-Economic Framework Statement, Medium Term Fiscal Policy Statement and Fiscal Policy Strategy Statement along with the Annual Financial Statement and Demands for Grants.

The Macro Economic Framework Statement contains an estimation of the growth potential of the economy with specification of certain assumptions. It emphasizes the growth in the gross domestic product (GDP) of the country, the fiscal balance of the central government as exhibited in the revenue balance and gross fiscal balance, and the external sector balance of the economy as stated in the current account balance of the balance of payments of the Indian economy.

With moderation in economic growth from the level of 9 per cent in 2010-11 to 4.5 per cent in 2012-13, there was general consensus that sustained high levels of fiscal deficit lead to various forms of macro-economic imbalances and call for immediate corrective fiscal policy response. Accordingly, as part of mid-year course correction, government successfully reduced fiscal deficit and laid down path for fiscal consolidation. Government was steadfast in its commitment towards fiscal rectitude and consolidated further in FY 2013-14.

However, varied challenges in terms of unfavourable external environment, domestic structural constraints, growth slowdown and inflationary pressures pose threat to the fiscal reform process. The economic growth rate has remained below 5 per cent level for past two successive years.

General Budget 2014-15 is being presented against early signs of economic recovery. There is sentiment of hope and expectation of economic activity picking up with exports and industrial production growing. The Government has re-affirmed its commitment to the unfinished task of fiscal consolidation. Budget 2014-15 is a step towards fulfilling the commitment set in the new FRBM regime. However, there is need to improve the quality of spending to achieve revenue deficit, and effective revenue deficit, targets. Correction in the composition of expenditure mix to achieve the set targets is necessary. This calls for changes in the program implementation mode to achieve higher capital formation either directly by government or through implementing agencies.

Last Updated on : July 17, 2014