Survey Calls for Relaxing FRBM for Centre
Context:
The Economic Survey 2025-26 has advocated for a delay in adhering to strict fiscal targets, such as the 3% fiscal deficit target mandated by the Fiscal Responsibility and Budget Management (FRBM) Act, 2003.
It argues that the government requires "policy freedom" and flexibility to navigate a volatile and unpredictable global geopolitical environment.
Key Arguments for Relaxation:
The Survey posits that while the FRBM framework appears appropriate, the current global uncertainty demands that the Centre retains the ability to "fine-tune fiscal policy" in response to emerging needs rather than being bound by rigid statutory targets.
Since the FRBM Act was enacted in 2003, the 3% fiscal deficit target has been achieved only once, leading to a perception that the target is unrealistic or continuously deferred.
Instead of a rigid number, the Survey suggests that trust among financial markets and credit-rating agencies is better maintained through a "sustained commitment to fiscal prudence," evidenced by the reduction of the Centre's fiscal deficit from a pandemic high of 9.2% (2020-21) to a targeted 4.4% in the current financial year.
Contrast with State Finances:
While advocating flexibility for the Centre, the Survey cautioned State governments against worsening fiscal health.
The number of States with a revenue surplus has dropped from 19 in 2018-19 to just 11 in 2024-25.
The collective revenue deficit of States has increased from 0.1% to 0.7% of GDP over the same period, indicating a deterioration in the quality of state-level expenditure.