Deficits

Fiscal Deficit = Govt Expenditure - (Revenue receipts + Non-debt receipts)

Revenue Deficit = Govt Revenue expenditure - Revenue receipts

Effective Revenue Deficit = Revenue deficit - Grants to states for capital assets

Primary Deficit = Fiscal deficit - interest payments in a year

FRBM Act 2003

Fiscal deficit - 3% of GDP by 31 Mar 2009
Revenue deficit of 0% by 31 Mar 2008 (even for states)
Targets can be exceeded only in case of national security, calamity, exceptional grounds

Fiscal Policy Strategy Statement
Medium Term Fiscal Policy Statement
Macro-Economic Framework Statement
Medium Term Expenditure Framework Statement- (to be presented in parliament in the Session after the Budget session).

But due to the 2008 world recession, it was not possible and suspended for later implementation

Each state has its own FRA act and the target for them is 3%- States generally comply because based on its compliance Centre will give some incentives.
States performed impressive after FRL in place
Acceleration of nominal GDP growth, Increased transfers from the centre, Reduced interest payments, Reduced need for spending by the states as Center took on no.of social and welfare schemes

Centre provided a conditional debt restructuring window,
So states could substantially lower their interest payments in the same year that they adopted the FRL

Advocated reaching a fiscal deficit to GDP ratio of 3% by 2020, 2.8% in 2020-21, 2.6% the subsequent year and 2.5% in 2022-23.
Eliminate the government’s primary deficit over the next five years.
Escape clause

The panel has introduced an escape clause that allows the government to skip the fiscal deficit target for a particular year, in situations that include national security concerns, acts of war, national calamities, a collapse of the agriculture sector and far reaching structural reforms with unanticipated fiscal implications.
Deviations from the stipulated fiscal targets should not be more than 0.5%.

The escape clause can also be triggered if the economy’s real output growth slips by three percentage points

so that fiscal deficit must fall at least 0.5% below the target if real output grows 3% faster than that average.

Proposed the creation of a Fiscal Council that the government must consult before invoking escape clauses.
Existing FRBM Act and rules be scrapped and a new Debt and Fiscal Responsibility Act be adopted

FRMB only covers the Fiscal Responsibility of a year but not covers the overall Debt

Hence NK Singh panel recommends to have a new Debt and Fiscal Responsibility Act

debt-to-GDP ratio Total - 60% (of 38.7% for the central government), (20% for the state governments together) by 2022-23

The Government has proposed an amendment to the FRBM Act.
In the proposed FRBM Architecture, Government will simultaneously target debt and fiscal deficit
Fiscal deficit as an operational target and do away with the deficit targets on revenue account i.e. revenue deficit (RD) and consequentially, effective revenue deficit (ERD).
The scope of the definition of the Central Government debt is being widened to include all outstanding liabilities including those in the Public Account of India. Further, external debt is to be valued at current exchange rates
Government to reach FD target of 3.0 per cent by 2020-21 and total outstanding liabilities to 40 per cent of GDP by FY 2024-25