The Kerala Fiscal Responsibility Act, 2003 (Act 29 of 2003).

 
 

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 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. 

 

Preamble –WHEREAS it is expedient 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 

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 the 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’ means 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 specification 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 market 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 year 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 Product 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 utilise 

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 limits are to be fixed and in the immediately 

preceding year. 

  The ‘additional fiscal space’ availing in such manner shall be utilised 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 guarantees 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 either 

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 Finance 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 effect 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.