The FRBMA is a legislative provision that applies to all governments, present and future. The argument given for such a law is that:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → in a multi-party parliamentary system, electoral concerns play an important role in determining expenditure policies
Governments facing elections are tempted to spend more. A law that binds every government, present and future, is seen as a better way to keep deficits in check.
The other three are real ideas used in the wrong place: Ricardian equivalence (taxation and borrowing are equivalent), the ‘we owe it to ourselves’ view of debt, and the fall of deficits in a boom.
Note: This question comes from the opening lines of the box on the FRBMA. Boxes carry exam points of their own, so read them as closely as the main text.
NCERT (2026-27): “Box 5.2: Fiscal Responsibility and Budget Management Act, 2003 (FRBMA) In a multi-party parliamentary system, electoral concerns play an important role in determining expenditure policies. A legislative provision, it is argued, that is applicable to all governments – present and future – is likely to be effective in keeping deficits under control. The enactment of the FRBMA, in August 2003, marked a turning point in fiscal reforms, binding the government through an institutional framework to pursue a prudent fiscal policy. …” |