The correct answer is 0.03. Explanation & Key Takeaways: • The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 was enacted by the Government of India to institutionalize financial discipline, reduce fiscal deficit, and improve macroeconomic management. • One of the key provisions of the FRBM Act mandates the central government to limit the fiscal deficit to a maximum of 3% of the GDP. This target is aimed at ensuring sustainable economic growth and maintaining fiscal responsibility. • The fiscal deficit is defined as the difference between the total revenue and total expenditure (excluding borrowings) of the government. • The Act aims to ensure that government borrowing remains within manageable limits, thereby reducing the risk of inflationary pressures and maintaining economic stability. • In addition to fiscal deficit, the FRBM Act also sets targets for other macroeconomic indicators such as revenue deficit and debt-to-GDP ratio, further strengthening the fiscal discipline framework. Related Concepts: • Key Objectives of the FRBM Act: • To ensure long-term fiscal stability by reducing fiscal deficits and public debt. • To improve the transparency and accountability in the fiscal operations of the government. • To promote intergenerational equity by reducing the burden of debt on future generations. • Amendments to the FRBM Act: • In 2018, the FRBM Act was amended to introduce a new set of fiscal targets, including a debt-to-GDP ratio of 40% for the central government by FY 2024-25. • The concept of an “escape clause” was introduced, allowing deviation from the fiscal deficit target by up to 0.5% in cases of national emergencies, structural reforms, or severe economic shocks. • Fiscal Indicators Defined: • Fiscal Deficit: The total borrowings required by the government to meet its expenditure when revenue falls short. • Revenue Deficit: The gap between the government’s revenue receipts and revenue expenditure. • Debt-to-GDP Ratio: The proportion of a country’s public debt relative to its GDP, indicating the sustainability of borrowing. • Recent Developments: • In response to the COVID-19 pandemic, the government temporarily deviated from the fiscal deficit target to address the economic disruptions caused by the crisis. • For FY 2021-22, the fiscal deficit target was revised to 6.8% of GDP, reflecting the extraordinary measures taken to support the economy. Important Notes: • Global Fiscal Standards: Many countries have adopted fiscal responsibility laws similar to the FRBM Act. For instance, the European Union sets a fiscal deficit target of 3% of GDP for its member states under the Stability and Growth Pact. • Implementation Challenges: Despite its objectives, adherence to FRBM targets has been challenging due to factors such as economic slowdowns, increased expenditure on welfare schemes, and external shocks. • Way Forward: Strengthening institutional mechanisms to monitor fiscal performance and improving the efficiency of public spending are crucial for achieving the goals of the FRBM Act.