Agence France Presse

New Delhi, July 5:

India’s new left-leaning government implemented a law today binding it to slash the fiscal deficit and cut borrowings from the central bank, an official in the finance ministry said.

The Fiscal Responsibility and Budget Management Act (FRBMA) was passed by parliament last year but only made effective from today, just days ahead of the unveiling of India’s annual budget on Thursday. The act requires the federal government to cut the fiscal deficit by 0.3 per cent and the revenue deficit by at least half a percentage point annually.

“The FRBM Act came into effect from today and it provides a clear institutional framework for the federal government to pursue a prudent fiscal policy aimed at sustained growth,” the official said. “It also stipulates wiping out India’s revenue deficit by March 2008 and prohibits the federal government from borrowing from the Reserve Bank of India after April 1, 2006,” he added.