The correct answer is 3% of GDP. Explanation & Key Takeaways: • The Fiscal Responsibility and Budget Management (FRBM) Act was enacted in 2003 to institutionalize financial discipline and reduce India’s fiscal deficit. • Under the original FRBM Act, the fiscal deficit target was set at 3% of GDP by 2008-09. • The FRBM Act aimed to ensure long-term macroeconomic stability and improve fiscal management by reducing government borrowing and debt levels. • The Act required the government to submit an annual Medium-Term Fiscal Policy Statement to Parliament, outlining plans to meet fiscal targets. • While the FRBM Act mandated fiscal consolidation, compliance faced challenges due to economic downturns and external pressures such as the global financial crisis of 2008. Related Concepts: • Fiscal Responsibility and Budget Management (FRBM) Act • The FRBM Act is a landmark legislation aimed at ensuring fiscal prudence and reducing government debt. • It introduced measures to improve transparency in India’s fiscal policy and impose fiscal discipline on the government. • Amendments to the FRBM Act have been introduced over the years to accommodate changing economic realities, including provisions for exceptional circumstances like national security or severe economic downturns. • Zero deficit • A zero fiscal deficit implies that government expenditure matches revenue exactly, without borrowing. While theoretically desirable, it is impractical for a growing economy like India, which requires borrowing for infrastructure and development projects. • The FRBM Act did not mandate a zero deficit but aimed to reduce the deficit to sustainable levels.