FRBM Act-One Size Fit All: Not an Optimum Strategy A Case Study of Haryana and Punjab

The fiscal crisis in the late 1990s caused rise in public debt in most of the Indian states forcing states to go for new borrowings even to finance revenue deficit (RD). To control this situation s Fiscal responsibility and budget management (FRBM) Act was enacted. The FRBM Act does not allow variation in underlying economic factors of the states. In the present paper an endeavor is made to evaluate the usefulness of various constraints on state government's fiscal management. Evidences from Haryana and Punjab show less rigid FRBM Act framework giving flexibility to states would be better option than the existing one.