Impact of FRBM Act 2003 on Public Expenditure in India

Abstract

India is a developing nation experiencing lower socio-economic indicators, and widespread poverty and inequality exist in the economy. So, the development of the nation requires huge public expenditure in the social and infrastructure sectors. The contribution of taxes to the GDP ratio is very low in India, and the government could not meet the various public works with limited resources. In India, interest payments, defence, pensions, salaries, and subsidies are the major components of public expenditure and collectively occupy more than 60 percent of total public expenditure. The government plays a vital role in establishing a welfare society, and it has spent a huge amount on the development of the economy in various ways. Insufficient funds from the government require better utilisation of available sources of public expenditure and better management of the fiscal deficit. In 2003, the Fiscal Responsibility and Budget Management (FRBM) Act was enacted to maintain the fiscal deficit at 3 percent, establish financial discipline in the economy, reduce the fiscal deficit, and improve the administration of public resources. This act came into force in 2004. This study aims at understanding the trends and growth rate of public expenditure in India. The study found that after implementing the FRBM Act 2003 in India, the ACGR of subsidies, loans, advances, and capital outlays has increased, which is conducive to enhancing economic development.