CAG Annual Review of FRBM Act Compliance 2024: Debt, Deficit, and Fiscal Targets

GS Paper 3: Indian Economy – Employment & Inclusive Growth

An important evaluation of the Union Government’s financial health is given by the Comptroller and Auditor General (CAG) of India’s Annual Review of FRBM Act Compliance 2024. With an emphasis on debt levels, fiscal imbalance, and target compliance, the assessment looks at how effectively India complied with the Fiscal Responsibility and Budget Management (FRBM) Act, 2003. The paper demonstrates India’s progress toward macroeconomic stability and intergenerational equity by examining trends in debt-to-GDP ratios, deficit management, and future threats.

Important Points of the Report

The central government’s debt as a percentage of GDP decreased steadily from 61.38% in FY 2020–21 to 57% at the end of March 2024. The economy has expanded to the point where it can absorb and service the accumulated debt, as evidenced by the Central Government Debt accumulation pace between FY 2020–21 and FY 2023–24 being slower than the GDP expansion.

• The ratio of public debt payments to public debt receipts decreased from 86.66% in FY 2019–20 to 81.46% in FY 2023–24, according to the Debt Sustainability Analysis (DSA).
• As required by the FRBM Act of 2003, the report is an annual assessment of the CAG’s compliance with the Act.

Objectives under the FRBM Act

The FRBM Act was passed in order to reduce the deficit and, consequently, the debt in order to advance long-term macroeconomic stability and intergenerational justice.

• According to the FRBM Act, the central government must make sure that, by the end of FY 2024–2025, the total amount of government debt (including debt from the federal government and state governments) does not surpass 60% of GDP.
• The debt of the central government does not above 40% of GDP. By March 31, 2021, the fiscal deficit (FD) should not exceed 3% of GDP. By FY 2025–2026, the government has pledged to reduce the FD to less than 4.5% of GDP.

Not provide further guarantees for any debt secured by the Consolidated Fund of India that exceeds 0.5 percent of GDP during any given fiscal year.

Mains: 

Question: The FRBM Act, 2003, was enacted to ensure fiscal discipline and inter-generational equity in India. Critically evaluate the extent to which the government has adhered to its targets in light of the CAG’s Annual Review of FRBM Act Compliance 2024.

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MCQs:

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Question: Consider the following statements regarding the Fiscal Responsibility and Budget Management (FRBM) Act, 2003:

1. It was enacted to promote long-term macroeconomic stability and inter-generational equity by reducing deficits and debt.
2. The Act mandates that the CAG of India prepare an annual review of its compliance.
3. By FY 2024-25, the Central Government debt target is capped at 60% of GDP.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer: (a)

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