As per the Fiscal Responsibility and Budget Management Act-2003, the Indian government shall not borrow from the ______ except by way of advances to meet temporary excess of cash disbursements over cash receipts.
Show answer & explanation
Correct answer: B
Explanation
Correct Answer:
Option 2 (Reserve Bank of India)
Explanation:
According to the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, the central government cannot borrow from the Reserve Bank of India (RBI). However, there is one exception: the government can borrow from the RBI through Ways and Means Advances (WMA) to cover temporary gaps or shortfalls between its cash receipts and cash payments. The purpose is to prevent monetization of the government's deficit and control inflation.
Additional Facts:
WMA: This is a temporary loan facility for the government, which must be repaid within a specified period.
Impact of the Act: The FRBM Act prohibited the RBI from directly purchasing government securities from the primary market, thereby strengthening fiscal discipline.
Intervention: These rules can only be relaxed in exceptional circumstances such as war, national disaster, or severe distress in the agricultural sector.
Possible questions for upcoming exams:
Who sets the limit for 'Ways and Means Advances' (WMA) for temporary lending to the government? (Answer: The government and the RBI, in consultation)
In which year did the RBI stop purchasing government bonds in the primary market? (Answer: April 1, 2006 - under the FRBM Act)
Where is the RBI's headquarters located? (Answer: Mumbai)