Finmin asks all ministries to get cracking on Fisc Responsibility Act

NEW DELHI: The finance ministry has sounded a note of alarm on the implementation of the Fiscal Responsibility and Budget Management (FRBM) Act.

In a note put up to finance minister P Chidambaram, it has said the Act could “die an unsung, untimely death,� unless all the wings of the ministry, including the revenue department, are sensitised about meeting the annual targets for revenue and fiscal deficit reduction.

The ministry’s note comes just a quarter after Mr Chidambaram notified the rules for the implementation of the FRBM Act on July 5. The rules say the government will eliminate revenue deficit by the end of FY09, cutting it down by 0.5% every year from ’04-05 onwards.

In the note, the ministry has said, “The fulfilment of obligations under the FRBM Act would not be possible for the finance minister without the active support of all, including the finance wings of other ministries and departments of the government.� The FRBM Act was piloted by the department of economic affairs in the finance ministry.

The ministry has reason to be concerned as the revenue deficit of the Centre has shot up to over 82% of the budgeted target for this fiscal within just five months, according to the government’s own figures.

Moreover, user departments including the Planning Commission, have pitched for a higher level of government expenditure. In addition, the Central Board of Trustees of the Employees Provident Fund has asked for maintaining the interest rates on the deposits in the fund at a high level of about 9%, with an explicit central subsidy. The ministry is also struggling to meet the demand made by the petroleum ministry to slash customs duties on oil, which accounts for almost one-third of the indirect tax receipts.

The finance ministry has said that administrative ministries and departments must “realise that FRBM Act is not a baby, only of the finance ministry.� It goes on to add that these organs should feel responsible for the successful implementation of the Act. It has held out a carrot, that this would, in turn, benefit them in the shape of larger fund outlay.

According to the thinking in the finance ministry, the cash management system introduced as a pilot project in nine major ministries and departments is sure to be expanded to other ministries, as this would increase the possibility of the success of the FRBM Act.

It has also suggested that to ensure a realistic figure of revenue projection and plugging of loopholes, the books of accounts of all ministries and departments will have to be altered.