FRBM Act and Fiscal Rules — Policy Reforms

Entry	Year	Description	Impact
FRBM (Amendment) Act, 2012	2012	This amendment revised the fiscal deficit target to 3% of GDP by 2016-17, extending the original deadline due to the global financial crisis. It also introduced the concept of 'effective revenue deficit' (ERD), which is the difference between revenue deficit and grants for creation of capital assets. The target was to eliminate ERD by 2014-15.	Provided a more realistic glide path for fiscal consolidation post-2008 crisis. The introduction of ERD aimed to differentiate between revenue expenditure that genuinely contributes to asset creation and pure consumption, encouraging better quality of expenditure. However, it also signaled a temporary relaxation of the original, more stringent targets.
FRBM (Amendment) Act, 2018 (based on N.K. Singh Committee)	2018	This significant amendment incorporated key recommendations of the N.K. Singh Committee. It replaced the revenue deficit target with a debt-to-GDP ratio target, aiming for a general government debt of 60% of GDP (40% for Centre, 20% for states) by 2024-25. It retained the 3% fiscal deficit target for the Centre but introduced a 'deviation' or 'escape clause' allowing for a 0.5 percentage point breach under specific circumstances.	Marked a shift towards a more comprehensive debt-based fiscal rule, recognizing that the stock of debt is as crucial as annual deficits. The escape clause provided much-needed flexibility, making the framework more adaptable to economic shocks. It also provided a clearer medium-term fiscal framework, though the COVID-19 pandemic necessitated further adjustments to the timeline.