SSC Stenographer 2025 PYQ — Question 30

Answer: To reduce government borrowing.

Explanation

The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 was enacted by the Parliament of India to institutionalize financial discipline and ensure that the government manages its money responsibly.

Fiscal Discipline: Before this Act, there was no legal limit on how much the government could borrow. This often led to high debt and interest payments. The FRBM Act set specific, legally binding targets to reduce the Fiscal Deficit (total borrowing) and the Revenue Deficit.

Controlling Borrowing: A primary objective of reducing the fiscal deficit is to limit the government's dependence on borrowed funds. High government borrowing can lead to "crowding out," where the government takes up most of the available credit in the market, leaving less for private investors and potentially driving up interest rates.

Inter-generational Equity: The Act aims to ensure that the current generation doesn't borrow so much that the burden of repayment falls heavily on future generations, thereby maintaining long-term macroeconomic stability.

Additional Points for Exams

Key Targets (Original): The original goal was to reduce the fiscal deficit to 3% of GDP and eliminate the revenue deficit entirely.

N.K. Singh Committee: In 2016, a committee headed by N.K. Singh was formed to review the FRBM Act. It recommended a debt-to-GDP ratio of 60% (40% for the Centre and 20% for States) by 2023.

Escape Clause: The Act allows the government to exceed its deficit targets during extraordinary circumstances like national security threats, war, national calamities, or severe agricultural collapse. This was notably triggered during the COVID-19 pandemic.

Potential Exam Questions & Answers

Q1: In which year was the FRBM Act officially enacted?

Answer: 2003 (It was implemented in 2004).

Q2: What is the recommended Debt-to-GDP ratio for the Central Government according to the N.K. Singh Committee?

Answer: 40%.