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Govt Debt under FRBM: A New Perspective


JUNE 05 , 2023

By J B Mohapatra

PARLIAMENTARY control over borrowing is derived from a constitutional provision - Article 292 of the Constitution (quoted below) - which outlines the constitutional obligations and oversight over national debt, and acts as a guardrail against inefficient and excessive borrowing, and uncontrolled deficit spending impulses through parliamentary control and supervision:

"Article 292: The executive power of the union extends to borrowing upon the security of the consolidated fund of India within such limits, if any, as may from time to time be fixed by parliament by law and to the giving of guarantees within such limits, if any, as may be so fixed. "

Enactment of Fiscal Responsibility and Budget Management Act, 2003 (FRBM Act) fulfils that necessary follow-up to the recommendation in article 292 of the constitution. Its preamble reads as follows:

"An Act to provide for the responsibility of the Central Government to ensure inter- generational equity in fiscal management and long-term macro-economic stability by removing fiscal impediments in the effective conduct of monetary policy and prudential debt management consistent with fiscal sustainability through limits on the Central Government borrowings, debt and deficits, greater transparency in fiscal operations of the Central Government and conducting fiscal policy in a medium-term framework and for matters connected therewith or incidental thereto."

Section 3 of FRBM Act requires the central government to lay before each house of parliament (along with annual financial statement and demand for grants) the medium term fiscal policy statement, the fiscal policy strategy statement, the macro-economic framework statement and the medium term expenditure framework statement. The fiscal policy strategy statement is required to contain (a) the policies relating to taxation, expenditure, market borrowing and other liabilities, lending and investments, pricing of administered goods and services, securities and description of other activities such as under-writing and guarantees which have potential budgetary implications; (b) the strategic priorities of the central government for the ensuing financial year in the fiscal area ; (c) the key fiscal measures and rationale for any major deviation in fiscal measures pertaining to taxation, subsidy, expenditure, administered pricing and borrowing, and (d) whether or not the current policies are in conformity with the fiscal management principles set out in section 4 of the FRBM Act.

Section 4 of the FRBM Act laying down the fiscal management principles reads as follows:

"4. (1) the Central Government shall,-

(a)  take appropriate measures to limit the fiscal deficit upto three per cent. of gross domestic product by the 31 st March, 2021;

(b)  endeavor to ensure that-

(i) the general Government debt does not exceed sixty per cent.;

(ii) the Central Government debt does not exceed forty per cent., of gross domestic product by the end of financial year 2024-2025;

(c) not give additional guarantees with respect to any loan on security of the Consolidated Fund of India in excess of one-half per cent of gross domestic product, in any financial year,

(d) endeavor to ensure that the fiscal targets specified in clauses (a) and (b) are not exceeded after stipulated target dates.

(2)  the Central Government shall prescribe the annual targets for reduction of fiscal deficit for the period beginning from the date of commencement of Part XV of Chapter VIII of the Finance Act, 2018 and ending on the 31 st March, 2021:

Provided that exceeding annual fiscal deficit target due to ground or grounds of national security, act of war, national calamity, collapse of agriculture severely affecting farm output and incomes, structural reforms in the economy with unanticipated fiscal implications, decline in real output growth of a quarter by at least three per cent points below its average of the previous four quarters, may be allowed for the purposes of this section.

(3)  Any deviation from fiscal deficit target under sub-section (2) shall not exceed one-half per cent. of the gross domestic product in a year.

4)  The Central Government shall, in case of increase in real output growth of a quarter by at least three per cent points above its average of the previous four quarters, reduce the fiscal deficit by at least one-quarter per cent of the gross domestic product in a year.

(5)  Where the fiscal deficit is allowed to vary from the target prescribed under the proviso to sub-section (2) or deviation is initiated under sub-section (4), a statement explaining the reasons thereof and the path of return to annual prescribed targets under this section shall be laid, as soon as may be, before both the Houses of Parliament. "

Fiscal deficit as per section 2(a) of the FRBM Act means "the excess of total disbursements, from the Consolidated Fund of India, excluding repayment of debt, over total receipts into the Fund (excluding the debt receipts), during a financial year". In accordance with section 2(aa) of the FRBM Act, central government debt means " (i)  the total outstanding liabilities of the Central Government on the security of the Consolidated Fund of India, including external debt valued at current exchange rates; (ii)  the total outstanding liabilities in the public account of India; and such financial liabilities of any body corporate or other entity owned or controlled by the Central Government, which the Government is to repay or service from the annual financial statement, reduced by the cash balance available at the end of that date" General government debt as per section 2(bb) of the FRBM Act means " the sum total of the debt of the Central Government and the State Governments, excluding inter-Governmental liabilities."

India's challenge to contain fiscal deficit, public debt and other liabilities within the permissible limits set out in the FRBM Act, enormous as they are, serial revenue deficit budgets year on year has only exacerbated the challenges. Actuals of revenue deficit of the past decade and from FY 20-21 are as follows:

Financial Year

Revenue Deficit (in Crs)

























2022-23 (BE)


2022-23 (RE)


2023-24 (BE)




This is where the importance of debt and management of debt in accordance with prudential debt limit norms and medium to long term fiscal indicators of the FRBM Act kick in. First of the consideration will be the quantum of the national debt and second will be the debt servicing cost.

Size of the public debt comprising internal debt ( market loans, treasury bills, gold bonds, securities issued to international financial institutions, securities against small savings), external debt and other liabilities since 2018 are as follows:

As On

Size of the National Debt (in Crs)

March 2018

76.94 lakh

March 2019

84.68 lakh

March 2020

94.62 lakh

March 2021

116.21 lakh

March 2022

133.22 lakh

December 2022

146.36 lakh

Interest payment and debt servicing cost for the above years as a proportion to gross revenue disbursement are as follows:

Financial Year

Debt servicing cost (In Crs)

Debt servicing as a proportion to gross revenue disbursement (in %)






















Union government's debt to GDP ratio (59.2% in FY 21 and 56.7% in FY 22) and general government liabilities to GDP (89.6% in FY 21 and 84.5% in FY 22) typify the constant struggles of the policy makers, in the face of recurrent revenue deficit budgets and limitations of government revenues to grow apace with the requirements, to stay within or close to the parameters set out in the FRBM Act, while ensuring that debt servicing burden, their timing and maturity are fully synchronous to the tenets of fiscal sustainability enshrined in the FRBM Act.

While it goes without saying that the necessity for a deeper congruence between debt and its purpose for ensuring long term fiscal sustainability is a vital consideration, parliament's oversight and its accountability to the public for its borrowing decisions and committing to the overall size of national debt through the working of FRBM Act is no less important. 2 features of FRBM Act in that context, one concerning the presentation of the FRBM statements to the parliament, and two, the measures to ensure compliance to the terms of that Act are vital.

Section 3 of the FRBM Act- fiscal policy statements to be laid before the parliament- requires that the central government lay before both houses of parliament the 3 statements (medium term fiscal policy statement, the fiscal policy strategy statement, and macro-economic framework statement) along-with the annual financial statement and demand for grants. (The 4 th statement- medium term expenditure framework- is to be laid before both houses of parliament immediately following the session of parliament in which the 3 earlier statements were laid.) Evidently the statements under the FRBM Act have not been legislatively designed or contemplated as separate or independent pieces of legislation. Even the Rules of Procedure and Conduct of Business in Lok Sabha in chapter XIX (Financial Business (Budget)) in Rule 204 prescribing the manner of presentation of the annual financial statement of the estimated receipt and expense, in Rule 206 laying down the mode of presentation of demand for grant, in Rule 218 providing the details of presentation of appropriation bill or in Rule 219 laying down the process of presentation of the finance bill, has no specific Rule to regulate the submission of statements under the FRBM Act. Bundling of FRBM statements with the omnibus annual financial statement as per section 3 of the FRBM Act, for anyone conscious and cognizant of the enormity of cost and consequences of national debt, dissipates in some measure a sharper focus and discussion on the likely impact of the size of the national debt , had the motion on FRBM statements been moved and passed as separate piece of legislation.

Second will be the issue of measures which ensure compliance of the existing size of national debt to the parameters set out in the FRBM Act. Unlike the fiscal deficit indicator with regard to which, the central government "shall take appropriate measures " to limit such deficit up to 3% of GDP by a given date (slippages from target allowed under section 4(2)(b) on grounds of national security, act of war, national calamity, collapse of agriculture, structural reforms in the economy, decline in real output growth), under section 4(2)(b) of the Act, the central government only " has to endeavour to ensure that (i) general government debt does not exceed 60%; (ii) the central government debt does not exceed 40% of GDP by the end of financial year 2024-25." The language itself employed to set limits to fiscal deficit and the national debt obviously suggests a tighter focus and accountability of the government on matter of fiscal deficit , and far less rigour and greater latitude when it comes to central government and general government debt. As much as fiscal deficit is a direct function and consequence of national debt, it stands to reason to include central government and general government debt within the "must do' parts of section 4(1)(a) of the FRBM Act, thereby setting tighter parliamentary oversight and control over determination of debt limits of the government.


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