While presenting the Union Budget 2012-13 in the Parliament Friday, Union Finance Minister Pranab Mukherjee announced the introduction of amendments to the Fiscal Responsibility and Budget Management Act, 2003 (FRBM Act).
The two important features of this amendment in the direction of expenditure reforms are Effective Revenue Deficit and Medium Term Expenditure Framework.
Effective Revenue Deficit is the difference between revenue deficit and grants for creation of capital assets.
This will help reduce consumptive component of revenue deficit and create space for increased capital spending.
Medium Term Expenditure Framework sets forth a three year rolling target for expenditure indicators.
Presenting the general budget 2012-2013, the Finance Minister said the implementation of the FRBM Act at Centre and the corresponding Acts at State level was the pivot in the successful consolidation of fiscal balance prior to the global financial crisis of 2008.
He said while implementing 12th Plan, recommendations of the Expert Committees to streamline and reduce the number of centrally-sponsored schemes, and to address Plan and non-Plan classifications, would be kept in view.
Finance Minister Mukherjee also announced that the Central Plan Scheme Monitoring System would be expanded for better tracking and utilization of funds.
Pranab, in his Budget speech, pointed towards deterioration of fiscal balance in 2011-12 due to slippage in direct tax revenue collection and increased subsidies.
He said profit margins came under strain due to higher interest rates and material costs, impacting growth in corporate taxes.
Fearing the average price of crude oil to exceed US $ 115 per barrel, Mukherjee said this had necessitated higher outlay on subsidies than earlier projected.
He said the continuing uncertainty in the global environment has made it necessary to strike a balance between fiscal consolidation and bolstering macro-economic fundamentals to help absorb future shocks.