Survey calls for relaxing FRBM for Centre, but says States’ finances worsening, Pg13

Key Highlights:

• The Economic Survey 2025-26 advocates for delaying strict fiscal targets for the Centre under the FRBM Act.
• The Centre's fiscal deficit is projected to reach 4.4% of GDP by the end of the current fiscal year.
• The Survey highlights a decline in the number of States with revenue surplus, from 19 in 2018-19 to 11 in 2024-25.
• States' collective revenue deficit increased from 0.1% to 0.7% of GDP between 2018-19 and 2024-25.

Detailed Insights:

• The Survey suggests that the government needs fiscal flexibility due to a volatile geopolitical and geoeconomic environment.
• The Centre successfully reduced its fiscal deficit from 9.2% of GDP in 2020-21, despite the absence of a legislative target.
• The FRBM Act’s target of 3% fiscal deficit by March 2020 has been repeatedly deferred, raising questions about its reinstatement.
• The Survey notes that the 3% target has only been achieved once since the FRBM Act was enacted in 2003, impacting fiscal credibility.
• States are facing worsening finances due to lower revenues and higher expenditures, including on cash transfers.
• The decline in states' revenue surplus has led to an increase in their collective revenue deficit.

Key Concepts Involved:

• Fiscal Deficit: The difference between a government's total expenditure and its total revenue.
• FRBM Act: Legislation to ensure fiscal discipline and reduce the fiscal deficit.
• Revenue Deficit: The shortfall in a government's revenue compared to its revenue expenditure.