LexThe Kerala Fiscal Responsibility Act, 2003 (Act 29 of 2003).
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GOVERNMENT OF KERALA
Law (Legislation – A) Department
NOTIFICATION
No.6560/Leg.A2/2003/Law Dated, Thiruvananthapuram, 17th September 2003
26th Bhadra. 1925
In pursuance of clause (3) of article 348 of the Constitution of India, the Governor
is pleased to authorise the publication in the Gazette of the following translation in the
English language of the Kerala Fiscal Responsibility Act, 2003 (29 of 2003).
By order of the Governor,
A.T.IGNATIUS,
Special Secretary (Law)
ACT 29 OF 2003
THE KERALA FISCAL RESPONSIBILITY ACT, 2003
An Act to provide for the responsibility of the Government to ensure prudence in
fiscal management and fiscal stability by progressive elimination of revenue deficit and
sustainable debt management consistent with fiscal st ability, greater transparency in
fiscal operations of the Government and conduct of fiscal policy in a medium term fiscal
frame work and for matters connected therewith or incidental thereto.
Preamble –WHEREAS it is expedient to provide for the responsi bility of the
Government to ensure prudence in fiscal management and fiscal stability by progressive
elimination of revenue deficit and sustainable debt management consistent with fiscal
stability, greater transparency in fiscal operations of the Government and conduct of fiscal
policy in a medium term fiscal frame work and for matters connected therewith or
incidental thereto.
BE it enacted in the Fifty-fourth Year of the Republic of India as follows:-
1. Short title and commencement. – (1) This Act may be called the Kerala Fiscal
Responsibility Act, 2003.
(2) It shall come into force, on such date as the Government may, by notification in
the Gazette, appoint.
2. Definitions-In this Act, unless the context otherwise requires,-
(a) ‘annual budget’ means the annual financial statement laid before the
Legislative Assembly under article 202 of the Constitution of India;
(b) ‘committee’ means public expenditure review committee constituted
under sub section (1) of section 6.
(c) ‘current year’ means the year preceding the year for which the budget and
medium term fiscal policy are being presented.
(d) ‘fiscal deficit’ means the excess of total expenditure of the Government over
the total receipts and represents the borrowing requirements, and net of
repayment of debt of th e Government during the year, calculated as
prescribed by the Comptroller and Auditor General of India.
(e) ‘fiscal indicators’ means measures such as numerical ceilings and
proportions to gross state domestic products as may be prescribed for
evaluation of the fiscal position of the State Government;
(f) ‘Government’ means Government of Kerala;
(g) ‘medium term fiscal framework’ means the frame work drawn up by the
Government for a five year period from the financial year on which this Act
shall come into force with the objective of progressively eliminating the
Revenue Deficit;
(h) ‘prescribed’ means prescribed by rules under this Act;
(i) ‘previous year’ means the year preceding the current year;
(j) ‘revenue deficit’ means the difference between revenue expenditure and
revenue receipts and implies increase in the liabilities of the State without
corresponding increase in the assets of the State calculated as prescribed by
the Comptroller and Auditor General of India;
(k) ‘State’ means the State of Kerala;
(l) ‘total liabilities’ mea ns liabilities upon the Consolidated Fund and public
account of the State;
(m) ‘triggers’ means the intra year bench marks on deficit.
3. Fiscal Policy Statement to be laid before the Legislative Assembly –
(1) The Government shall lay in every financial year before the
Legislative Assembly along with the annual budget, a medium
term fiscal policy statement and a fiscal policy strategy
statement.
(2) The medium term fiscal policy statement shall set forth a three
year rolling target for fiscal indicators with speci fication of
underlying assumptions.
(3) In particular and without prejudice to the provisions contained in
sub –section (2) the medium term fiscal policy statement shall
include assessment of sustainability relating to -
(a) the balance between revenue receipts and revenue expenditure;
(b) use of capital receipts including open m arket borrowings for generating
productive assets.
(4) the fiscal policy strategy statement shall, interalia, contain, -
(a) policies of Government for the ensuing financial year relating to taxation,
expenditure, borrowings and other liabilities, lending and investment and such
other activities like underwriting and guarantees which have potential budgetary
implications:
(b) the strategic priorities of the Government for the ensuing financial yea r in
the fiscal area;
(c) evaluation as to how current policies of the Government are in conformity
with the fiscal management principles as set out in section 4 and the
objectives set out in medium term fiscal policy statement.
4. Fiscal Management Principles- (1) The Government shall take appropriate measures
to reduce the revenue deficit and build up an adequate revenue surplus by following
such principles as may be prescribed.
* (2) In particular and without prejudice to the generality of the foregoing provision,
the Government shall eliminate the revenue deficit completely during the period from
2017-2018 to 2019-2020 and shall,-
(a) build up surplus amount of revenue and utilize such amount for
discharging liabilities in excess of assets;
(b) maintain the fiscal deficit to 3 per cent of the Gross State Domestic Product
during the period from 2017-2018 to 2019-2020;
Note:- (i) State shall be eligible for additional reduction of 0.25 per cent over
and above this, for any given year for which the borrowing limits are to be fixed
if the ratio between the Gross State Domestic Product and debt is less than or
equal to 25 per cent in the preceding year;
(ii) State may further be eligible for additional borrowing limit of 0.25
per cent of Gross State Domestic Prod uct in a given year for which the
borrowing limits are to be fixed if the interest payments are less than or equal to
10 per cent of the revenue receipts in the preceding year;
(iii) If anyone of the above said criteria is fulfilled, the State may ut ilise
the said concessions either separately or if both are fulfilled the said concessions
together may be utilized by the State. The maximum ratio between the fiscal
deficit and Gross State Domestic Product in a prescribed year may be up to 3.5
per cent to the State accordingly;
(iv) The reductions in availing the additional limit under either of the two
options or both will be available to the State only if there is no revenue deficit
in the year in which borrowing lim its are to be fixed and in the immediately
preceding year.
The ‘additional fiscal space’ availin g in such manner shall be utilis ed for
the State share of the Centrally Sponsored Schemes.
(c) reduce the total debt liabilities of the State in the years of 2017-2018, 2018-
2019 and 2019-2020 in the order of 30.40 per cent, 30.01 per cent and 29.67
per cent respectively of the Gross State Domestic Product.
5. Measures for Fiscal Transparency – (1) The Government shall take suitable
measures to ensure greater transparency in its fiscal operations and minimize as
far as practicable in public interest official secrecy in the preparation of annual
budget:
Provided that the Government shall have the power to reserve any such information
which would adversely affect the interest of the State Exchequer.
*Vide Act 7 of 2018, notification no. 5904/Leg. A1/2018/Law dated 31.03.2018.
(2) In particular and without prejudice to the generality of the foregoing provision the
Government shall at the time of presentation of annual budget disclose in such manner as
may be prescribed,-
(a) the significant changes in the accounting standards, policies and practices
affecting or likely to affect the compliance of the prescribed fiscal indicators;
(b) as far as practicable, all outstanding contractual liabilities, revenue demands raised,
but not realized, committed liability in respect of major works and supply contracts,
losses incurred in providing public goods and services, off budget borrowings and
contingent liabilities created by way of gu arantees having potential budgetary
implications.
6. Public Expenditure Review Committee.- (1) As soon as may be after the
commencement of the Act, the Government may, by notification in the Gazette
appointed a Committee to be called ‘Public Expenditure Review Committee’.
(2) The Committee shall consists of not more than five members who are having
expertise in the fields of Finance, Economic Management, Planning, Accounts and
Audit and Law.
(3) The members of the Committee shall be appointed by the Government on the
recommendation of the Selection Committee consisting of Chief Minister, Finance
Minister and the Leader of the Opposition.
(4) The terms and conditions of the members in the Committee shall be such as may be
prescribed.
7. Powers and functions of the Committee - The Committee shall submit to the
Government is such form and at such intervals as may be prescribed a review report
giving full account of each item where the deviation from the fiscal target have
occurred during the previous year.
8. Measures to enforce compliance – (1) The Government shall specify in the annual
budget the contingent measures that it would take to control the increase in deficit
beyond certain specified levels during the coming year. Whenever there is e ither
shortfall in revenue or excess of expenditure over specified levels during the course
of the year, the Government shall take steps either to make proportionate reduction
in the voted expenditure authorised from the consolidated Fund or to increase the
revenue and in case such reduction being made it shall be without affecting the
amount charged thereon. Triggers as well as corrective actions that shall be initiated
upon activation of triggers shall also be the integral part of the budget.
(2) The F inance Minister of the State shall make a statement in the Legislative
Assembly explaining any deviation in meeting the obligation of the Government under
this Act and shall further explain whether the deviation is substantial and relates to the
actual or the potential budgetary outcome and state the remedial measures that the
Government propose to take in this regard.
9. Power to make rules.- (1) The Government may, by notification in the Gazette, make
rules for the purpose of carrying into effect the provisions of this Act.
(2) Every rules made under this Act shall be laid, as soon as may be after it is made,
before the Legislative Assembly while it is in session for a total period of fourteen
days which may be comprised in one session or in two successive sessions and if,
before the expiry of the session in which it is so laid or the session immediately
following, the Legislative Assembly makes any modification in the rule or decides that
the rule should not be made, the rule shall thereafter have effect only in such modified
form or be of no effect, as the case may be; so however that any such modification or
annulment shall be without prejudice to the validity of anything previously done under
that rule.
10. Protection of action taken in good faith -No suit, prosecution or other legal
proceeding shall lie against the Government or the Committee or any Officer of
the Government or any member of the Committee for anything which in good faith
done or intended to the done under this Act or the rules made thereunder.
11. Application of other laws not barred – The provisions of this Act shall be in
additions to and not in derogation of the provisions of any other law for the time
being in force.
12. Removal of difficulties – (1) If any difficulty arises in giving e ffect to the
provisions of this Act, the Government may, by order, do anything not
inconsistent with such provisions to remove such difficulty.
(2) No order under sub -section (1) shall be made after the expiration of a period of
two years from the commencement of this Act.
(3) Every order made under this section shall be laid, as soon as may be after it is
made before the Legislative Assembly.