The correct option is 2 and 3 only.
Explanation
The Fiscal Responsibility and Budget Management (FRBM) Act, 2003, was enacted to institutionalize financial discipline, reduce India's fiscal deficit, improve macroeconomic management, and ensure inter-generational equity in fiscal management.
Statement-wise Analysis:
- Statement 1 is Incorrect. The primary objective of the FRBM Act is fiscal consolidation, not expansion. The Act originally mandated the Central Government to reduce the fiscal deficit to 3 % of GDP by March 31, 2009 (later amended). It does not mandate increasing the deficit to 5 %; rather, it sets limits to curb excessive government borrowing.
- Statement 2 is Correct. The Act prohibits the Central Government from borrowing directly from the Reserve Bank of India (RBI). This provision effectively ended the practice of monetizing the deficit (printing currency to fund government expenditure). However, an exception exists for temporary advances to meet cash mismatches, known as Ways and Means Advances (WMA).
- Statement 3 is Correct. The Act includes an "escape clause" that allows the government to exceed the prescribed annual fiscal deficit targets under specific exceptional circumstances. These grounds include national security, natural calamity, or other exceptional grounds as the Central Government may specify.
Key Takeaway:
The FRBM Act, 2003 aims to ensure long-term fiscal stability by limiting government borrowing and prohibiting direct deficit monetization by the RBI, while retaining flexibility (escape clauses) for national emergencies.