Consider the following statements in respect of the Fiscal Responsibility and Budget Management Act ...........

Economic Affairs Public Finance and Debt Management

Consider the following statements in respect of the Fiscal Responsibility and Budget Management Act and mark the incorrect statement?

It does not permit the Central Government to give guarantees to loans raised by PSUs and State Governments beyond 0.5 per cent of GDP.

Only the Central Government and not the state government is mandated to follow FRBM.

It prescribes an upper limit for the liabilities of the government.

It lays down limits for revenue deficit and fiscal deficit as a percentage of GDP

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Explanation:

2nd option is incorrect.

FRBM Act provides a legal institutional framework for fiscal consolidation. It is now mandatory for the Central government to take measures to reduce fiscal deficit, to eliminate revenue deficit, and to generate revenue surplus in the subsequent years. The Act binds not only the present government but also the future Government to adhere to the path of fiscal consolidation. The Government can move away from the path of fiscal consolidation only in case of natural calamity, national security, and other exceptional grounds which the Central Government may specify.

State Governments are also required to follow the FRBM Act. Thus 2nd statement is incorrect