CAG Review of the FRBM Act

The CAG’s 2023-24 review of the FRBM Act highlights that India is progressing steadily toward long-term macroeconomic stability

Key Highlights of the CAG Review of the FRBM Act for FY 2023-24:

• Central Government Debt: Declined to 57% of GDP in March 2024 from 61.38% in FY 2020-21, indicating an improvement in managing debt levels.

• General Government Debt (GGD): Declined slightly from 83% of GDP in March 2022 to 81.3% in March 2023, but still remains well above the FRBM target of 60%.

• Debt Sustainability Analysis (DSA): This analysis assesses the government's ability to service its debt, with the debt-to-GDP ratio being the key indicator. A sustainable fiscal policy requires this ratio to be stable or declining over time.

• The Centre’s debt-to-GDP ratio, after peaking at 61.38% in FY 2020-21, has declined steadily to 57% in FY 2023-24, showing progress towards fiscal sustainability.

• Unrealised Taxes: At the end of FY 2023-24, unrealised tax revenues stood at Rs 31.11 lakh crore, which is an increase of Rs 9.81 lakh crore compared to the previous year (2022-23), indicating challenges in tax collection or realization.

What is the FRBM Act, 2003?

• Purpose: The FRBM Act was enacted to reduce fiscal deficits, promote long-term macroeconomic stability, and ensure inter-generational equity (so future generations are not burdened by excessive debt).

• Amendments: The Act has been amended several times — in 2004, 2012, 2015, and 2018 — to revise deficit targets, set new debt reduction goals, and provide flexibility in managing fiscal policy during crises like the pandemic.

Key Provisions of the FRBM Act:

1. Fiscal Responsibility:

   • Requires the Finance Minister to review fiscal trends and present half-yearly reports to both Houses of Parliament.

2. Medium-Term Fiscal Policy (MTFP):

   • Mandates the presentation of an MTFP statement outlining rolling three-year targets for key fiscal indicators:

     • Revenue Deficit

     • Fiscal Deficit

     • Central Government Debt as a percentage of GDP

3. Implementation and Review:

   • The Comptroller and Auditor General (CAG) conducts annual reviews to assess government compliance with FRBM targets.

FRBM Targets (As per 2018 Amendment):

• General Government Debt (Centre + States, excluding inter-governmental liabilities) to be reduced to 60% of GDP by FY 2024-25.

• Central Government Debt target is 40% of GDP by FY 2024-25.

• Fiscal Deficit (FD) target was originally set at 3% of GDP by March 2021 but deferred due to the COVID-19 pandemic.

• The government now commits to maintaining FD below 4.5% of GDP by 2025-26.

• In June 2025, India successfully met its fiscal deficit target of 4.8% of GDP for FY 2024-25.

• The government must not provide additional loan guarantees exceeding 0.5% of GDP in any financial year from the Consolidated Fund of India.