<div>
	The medium-term expenditure framework (MTEF) statement sets a three-year rolling target for expenditure indicators, along with specifications of underpinning assumptions and risks. This statement is presented in Parliament under Section 3 of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003.</div>
<div>
	&nbsp;</div>
<div>
	The statement provides an estimate of expenditure for various sectors, including education, health, rural development, energy, subsidies and pension, and so on. Data such as expenditure commitments spread across the various central ministries on salaries and pensions, major programmes, grants-in-aid for creation of capital assets, defence expenditure, interest payment and major subsidies, etc, besides other commitments of the government are considered while formulating this statement.</div>
<div>
	&nbsp;</div>
<div>
	Expenditure commitments for revenue and capital expenditure are shown separately. Also depicted as part of revenue expenditure are &quot;grants-in-aid for creation of capital assets&quot; and its projection.</div>
<div>
	&nbsp;</div>
<div>
	The objective of MTEF is to facilitate a closer integration between FRBM statements and the Union Budget. This statement is presented in the session after the one in which the Budget is presented &mdash; usually, that is the monsoon session.</div>
<div>
	&nbsp;</div>
<div>
	The first Medium Term Expenditure Framework was laid in the monsoon Session of Parliament in August 2013.</div>
<div>
	&nbsp;</div>
<div>
	<strong>MTEF essentially contains the following:</strong></div>
<ul>
	<li>
		The expenditure commitment of the government on major policy changes involving new services, new instruments of service, new schemes and programmes</li>
	<li>
		Explicit contingent liabilities in the form of stipulated annuity payments stated over a multi-year timeframe</li>
	<li>
		A detailed break-up of grants for creating capital assets</li>
</ul>

RELATED BUDGET TERMS

Learn what is Medium-term expenditure framework statement, News, Definition and more here at Business Standard.

What is Medium-term expenditure framework statement, Medium-term expenditure framework statement Definition

Medium-term expenditure framework statement

What is Medium-term expenditure framework statement

<div>
	The Fiscal Policy Strategy Statement, presented to Parliament under Section 3(4) of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, outlines the strategic priorities of the government in the fiscal area for the ensuing financial year relating to taxation, expenditure, lending and investments, administered pricing, borrowings and guarantees. The statement explains how the current policies are in conformity with sound fiscal management principles and gives the rationale for any major deviation in key fiscal measures.</div>
<div>
	&nbsp;</div>
<div>
	The Interim Budget did not outline such a statement. Here&#39;s what the government aimed to achieve in its Fiscal Policy Strategy Statement of Budget 2018:</div>
<div>
	&nbsp;</div>
<div>
	a) To target simultaneously on fiscal deficit and debt</div>
<div>
	&nbsp;</div>
<div>
	b) To target fiscal deficit as an operational target and to ensure that the fiscal deficit of 3 per cent of GDP is reached by the government by FY21.</div>
<div>
	&nbsp;</div>
<div>
	c) The central government shall endeavour to follow a declining debt trajectory and the reach a debt target of 40 per cent of GDP, as also to keep the general government debt at 60 per cent of GDP by FY25.</div>
<div>
	&nbsp;</div>
<div>
	d) Inserting adequately defined escape and buoyancy clauses to determine when the targets defined by the FRBM Act may be relaxed or tightened as the case may be.</div>
<div>
	&nbsp;</div>

Learn what is meant by Fiscal Policy Strategy Statement, Fiscal Policy Strategy Statement definition and more Fiscal Policy Strategy Statement news here at Business Standard.

What is Fiscal Policy Strategy Statement, Fiscal Policy Strategy Statement Meaning and Definition

Fiscal Policy Strategy Statement

<div>
	A country&rsquo;s fiscal balance is measured by its government&rsquo;s revenue vis-a-vis its expenditure in a given financial year. Fiscal deficit, the condition when the expenditure of the government exceeds its revenue in a year, is the difference between the two. Fiscal deficit is calculated both in absolute terms and as a percentage of the country&rsquo;s gross domestic product (GDP).</div>
<div>
	&nbsp;</div>
<div>
	The fiscal deficit of a country is calculated as a percentage of its GDP or simply as the total money spent by the government in excess of its income. In either case, the income figure includes only taxes and other revenues and excludes money borrowed to make up the shortfall.</div>
<div>
	&nbsp;</div>
<div>
	In her maiden Union Budget, Finance Minister Nirmala Sitharaman had revised the government&rsquo;s fiscal deficit target for 2019-20 to 3.3 per cent of GDP, 10 basis points lower than the target for the previous financial year.</div>
<div>
	&nbsp;</div>
<div>
	<strong>How is fiscal deficit calculated?</strong></div>
<div>
	&nbsp;</div>
<div>
	The fiscal deficit, in mathematical terms, is [total revenue generated &mdash; total expenditure]. The total revenue is the sum of revenue receipts, recovery of loans and other receipts of the government.</div>
<div>
	&nbsp;</div>
<div>
	While most countries continue to project a deficit in their economies, a surplus is a rare phenomenon. A high deficit at times also emerges if the government is spending on developmental works like construction of highways, ports, roads, airports which will later generate revenue for the government.</div>
<div>
	&nbsp;</div>
<div>
	<strong>What are components of the fiscal deficit calculation?</strong></div>
<div>
	&nbsp;</div>
<div>
	The fiscal deficit calculations are based on two components &mdash; income and expenditure.</div>
<div>
	&nbsp;</div>
<div>
	Income component: The income component is made of two variables, revenue generated from taxes levied by the Centre and the income generated from non-tax variables. The taxable income consists of the amount generated from corporation tax, income tax, Customs duties, excise duties, GST, among others. Meanwhile, the non-taxable income comes from external grants, interest receipts, dividends and profits, receipts from Union Territories, among others.</div>
<div>
	&nbsp;</div>
<div>
	Expenditure component: The government in its Budget allocates funds for several works, including payments of salaries, pensions, emoluments, creation of assets, funds for infrastructure, development, health and numerous other sectors that form the expenditure component.</div>
<div>
	&nbsp;</div>
<div>
	<strong>How is fiscal deficit balanced out?</strong></div>
<div>
	&nbsp;</div>
<div>
	While a rising deficit is a challenge for the government in the long term, to balance it out in short-term macroeconomics, the government looks at market borrowings by issuing bonds and selling them in through banks. Banks buy these bonds with currency deposits and then sell them to investors. Government bonds are considered an extremely safe investment instrument, so the interest rate paid on loans to the government represents risk-free investment.</div>
<div>
	&nbsp;</div>
<div>
	The government also sees a deficit situation as an opportunity to expand policies and schemes, including welfare programmes, without having to raise taxes or cut spending in the Budget.</div>

Learn what is Fiscal Deficit,how is fiscal deficit calculated, Definition and more Fiscal Deficit news here at Business Standard.

What is Fiscal Deficit, Fiscal Deficit News, Budget 2020 News, Fiscal Deficit Calculation

Fiscal Deficit

<div>
	Fiscal policy, in simple terms, is an estimate of taxation and government spending that impacts the economy.</div>
<div>
	&nbsp;</div>
<div>
	<strong>Types of fiscal policy</strong></div>
<div>
	&nbsp;</div>
<div>
	There are two types of fiscal policy:</div>
<div>
	&nbsp;</div>
<div>
	<strong>Expansionary fiscal policy:</strong> This policy is designed to boost the economy. It is mostly used in times of high unemployment and recession. It leads to the government lowering taxes and spending more, or one of the two. The aim is to stimulate the economy and ensure consumers&#39; purchasing power does not weaken.</div>
<div>
	&nbsp;</div>
<div>
	<strong>Contractionary fiscal policy: </strong>As the term suggests, this policy is designed to slow economic growth in case of high inflation. The contractionary fiscal policy raises taxes and cuts spending.</div>
<div>
	&nbsp;</div>
<div>
	<strong>What are the tools of fiscal policy?</strong></div>
<div>
	&nbsp;</div>
<div>
	There are two key tools of the fiscal policy:</div>
<div>
	&nbsp;</div>
<div>
	<strong>Taxation:</strong> Funds in the form of direct and indirect taxes, capital gains from investment, etc, help the government function. Taxes affect the consumer&#39;s income and changes in consumption lead to changes in real gross domestic product (GDP).</div>
<div>
	&nbsp;</div>
<div>
	<strong>Government spending: </strong>It includes welfare programmes, government salaries, subsidies, infrastructure, etc. Government spending has the power to raise or lower real GDP, hence it is included as a fiscal policy tool.</div>
<div>
	&nbsp;</div>
<div>
	<strong>Fiscal policy objectives</strong></div>
<div>
	&nbsp;</div>
<div>
	Some of the key objectives of fiscal policy are economic stability, price stability, full employment, optimum allocation of resources, accelerating the rate of economic development, encouraging investment, and capital formation and growth.</div>
<div>
	&nbsp;</div>
<div>
	<strong>Who sets fiscal policy?</strong></div>
<div>
	&nbsp;</div>
<div>
	In India, the Union finance minister formulates the fiscal policy.</div>
<div>
	&nbsp;</div>
<div>
	<strong>What is the importance of fiscal policy?</strong></div>
<div>
	&nbsp;</div>
<div>
	Fiscal policy is a crucial part of the economic framework. In India, it plays a key role in elevating the rate of capital formation, both in the public and private sectors.</div>
<div>
	&nbsp;</div>
<div>
	The fiscal policy helps mobilise resources for financing projects. The central theme of fiscal policy includes development activities like expenditure on railways, infrastructure, etc. Non-development activities include spending on subsidies, salaries, pensions, etc. It gives incentives to the private sector to expand its activities.</div>
<div>
	&nbsp;</div>
<div>
	Fiscal policy aims to minimise income and wealth inequalities. Income tax is charged on all salaried persons directly proportioned to their income. Likely indirect taxes are also more in the case of semi-luxury and luxury items than that of necessary consumable items. In this way, the government generates a good amount of revenue and that also leads to a reduction in wealth inequalities.</div>
<div>
	&nbsp;</div>
<div>
	A prudent fiscal policy stabilises price and helps control inflation.</div>
<div>
	&nbsp;</div>
<div>
	Fiscal policy planning gives the larger chunk of funds for regional development so as to achieve a balanced regional development. It aims to reduce the deficit in the balance of payment.</div>
<div>
	&nbsp;</div>
<div>
	<strong>Difference between monetary policy and fiscal policy</strong></div>
<div>
	&nbsp;</div>
<div>
	Monetary policy is concerned with the management of interest rates and the total supply of money in circulation. It is generally carried out by the RBI.</div>
<div>
	&nbsp;</div>
<div>
	Fiscal policy, on the other hand, estimates taxation and government spending. It should ideally be in line with the monetary policy, but since it is created by lawmakers, people&#39;s interest often takes precedence over growth.</div>

Learn what is Fiscal policy, Fiscal policy News, Fiscal policy Definition and more here at Business Standard.

What is Fiscal policy, Fiscal policy Definition, Fiscal policy News

Fiscal Policy

<div>
	The Fiscal Responsibility and Budget Management Act (FRBM Act), 2003, establishes financial discipline to reduce fiscal deficit.</div>
<div>
	&nbsp;</div>
<div>
	<strong>When was the FRBM Act enacted? Who introduced it in India?</strong></div>
<div>
	&nbsp;</div>
<div>
	The FRBM Bill was introduced by the then finance minister, Yashwant Sinha, in 2000. The Bill, approved by the Union Cabinet in 2003, became effective from July 5, 2004.</div>
<div>
	&nbsp;</div>
<div>
	<strong>What are the objectives of the FRBM Act?</strong></div>
<div>
	&nbsp;</div>
<div>
	The FRBM Act aims to introduce transparency in India&#39;s fiscal management systems. The Act&rsquo;s long-term objective is for India to achieve fiscal stability and to give the Reserve Bank of India (RBI) flexibility to deal with inflation in India. The FRBM Act was enacted to introduce more equitable distribution of India&#39;s debt over the years.</div>
<div>
	&nbsp;</div>
<div>
	<strong>Key features of the FRBM Act</strong></div>
<div>
	&nbsp;</div>
<div>
	The FRBM Act made it mandatory for the government to place the following along with the Union Budget documents in Parliament annually:</div>
<div>
	&nbsp;</div>
<div>
	<strong>1. </strong>Medium Term Fiscal Policy Statement</div>
<div>
	&nbsp;</div>
<div>
	<strong>2. </strong>Macroeconomic Framework Statement</div>
<div>
	&nbsp;</div>
<div>
	<strong>3. </strong>Fiscal Policy Strategy Statement</div>
<div>
	&nbsp;</div>
<div>
	The FRBM Act proposed that revenue deficit, fiscal deficit, tax revenue and the total outstanding liabilities be projected as a percentage of gross domestic product (GDP) in the medium-term fiscal policy statement.</div>
<div>
	&nbsp;</div>
<div>
	<strong>FRBM Act exemptions</strong></div>
<div>
	&nbsp;</div>
<div>
	On grounds of national security, calamity, etc, the set targets of fiscal deficits and revenue could be exceeded.</div>
<div>
	&nbsp;</div>
<div>
	<strong>How effective has the FRBM Act been?</strong></div>
<div>
	&nbsp;</div>
<div>
	Several years have passed since the FRBM Act was enacted, but the Government of India has not been able to achieve targets set under it. The Act has been amended several times.</div>
<div>
	&nbsp;</div>
<div>
	In 2013, the government introduced a change and introduced the concept of effective revenue deficit. This implies that effective revenue deficit would be equal to revenue deficit minus grants to states for the creation of capital assets. In 2016, a committee under N K Singh was set up to suggest changes to the Act. According to the government, the targets set under FRBM Act previously were too rigid.</div>
<div>
	&nbsp;</div>
<div>
	<strong>N K Singh Committee&#39;s recommendations were as follows:</strong></div>
<div>
	&nbsp;</div>
<div>
	<strong>Targets:</strong> The committee suggested using debt as the primary target for fiscal policy and that the target must be achieved by 2023.</div>
<div>
	&nbsp;</div>
<div>
	<strong>Fiscal Council:</strong> The committee proposed to create an autonomous Fiscal Council with a chairperson and two members appointed by the Centre (not employees of the government at the time of appointment)</div>
<div>
	&nbsp;</div>
<div>
	<strong>Deviations:</strong> The committee suggested that the grounds for the government to deviate from the FRBM Act targets should be clearly specified</div>
<div>
	&nbsp;</div>
<div>
	<strong>Borrowings:</strong> According to the suggestions of the committee, the government must not borrow from the RBI, except when...</div>
<div>
	&nbsp;</div>
<div>
	<strong>a.</strong> the Centre has to meet a temporary shortfall in receipts</div>
<div>
	&nbsp;</div>
<div>
	<strong>b.</strong> RBI subscribes to government securities to finance any deviations</div>
<div>
	&nbsp;</div>
<div>
	<strong>c. </strong>RBI purchases government securities from the secondary market</div>
<div>
	&nbsp;</div>
<div>
	&nbsp;</div>

Learn what is FRBM Act, FRBM Act News, FRBM Act Definition and more here at Business Standard.

What is FRBM Act, FRBM Act Definition, FRBM Act News

FRBM Act

Medium-term expenditure framework statement news