The Lok Sabha today passed the amended Fiscal Responsibility and Budget Management (FRBM) Bill removing explicit targets for the reduction of the fiscal and revenue deficits as well as the cap on government borrowing.
It has also barred the Reserve Bank of India (RBI) from subscribing to government papers through the primary market with effect from 2006-07.
The Bill has introduced a provision by which the finance minister will have to specify how he proposes to increase the gross domestic product (GDP) during the presentation of the Budget before Parliament. It says no civil court will have the jurisdiction to question the legality of any action taken by the Centre under this Act.
Instead of mandating a 0.5 per cent annual cut in deficits, the Bill says the Centre will take appropriate measures to eliminate revenue deficit by March 31, 2008, and set annual targets for reduction of fiscal and revenue deficits till then.
It has removed the targeted cap on government borrowings at 50 per cent of the GDP by 2010 and left it to the discretion of the Centre. It has also provided an escape clause for not meeting the targets on grounds of national calamity, security or other exceptional circumstances.
Winding up the discussion, Finance Minister Jaswant Singh said legislation would not bring about fiscal discipline unless the Centre and states exercised restraint.
He, however, said the Bill did not permanently shut the door for the government to borrow additionally from the RBI, which could lend in the case of exceptional situations like natural calamities.
The Bill states that the apex bank will not subscribe to government securities through the primary market with effect from April 1, 2006, except on grounds of national security, national calamity or other exceptional grounds specified by the Centre.
It also prohibits direct borrowing by the Centre from the RBI except for meeting temporary cash needs.
Singh said to ensure proper utilisation of funds allocated for projects, the government had evolved a mechanism under which funds would be released in tranches on the basis of the actual work done.
He said despite the recent pre-payment of World Bank and Asian Development Bank (ADB) loans, not a ripple was felt in the country. He said this demonstrated the inherent resilience of the economy despite the impact of the Gulf War.
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