Uttar Pradesh: FRBM Ordinance, 2020

Published: June 22, 2020

On June 22, 2020, the Uttar Pradesh Government announced that it will bring in an ordinance, “UP Fiscal Responsibility and Budget Management”, FRBM Ordinance, 2020. This is the second amendment being made to the act by the state government under CM Yogi Adityanath.

Highlights

By making the amendment, the Uttar Pradesh State Government will be able to hold additional funds of Rs 35,000 crores in the year 2020-21.

It is to be noted that in May 2020, the Union finance Minister Nirmala Sitaraman allowed the states to increase their borrowing limit from 3% of their GSDP to 5%.

FRBM act

The FRBM act was enacted in 2003 to reduce fiscal deficit of the country. The main aim of the act was to bring down the fiscal deficit to 3% of GDP by March 2008. However, this could not be achieved due to the 2007 global financial crisis.

N K Singh Committee

The N K Singh Committee was formed in 2016 under the Ministry of Finance to review the FRBM act. The committee recommended GoI to target fiscal deficit of 3% of GDP by 2020. Later to reduce it to 2.8% in 2020-21 and 2.5% by 2023.

Current Scenario

The GoI relaxed the FRBM act norms for the states to have their fiscal deficit at 3% of their SGDP. This is being done to allow the state governments to raise their additional sources. The Finance Commission recently advised the states to use the clause of FRBM that allows the state governments to raise the fiscal deficit up to 50 basis points. This will help the states to increase their funds in hands.

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