Consider the following statements about the ‘Escape Clauses’ in the Fiscal Responsibility and Budget Management (FRBM) Act, 2003: 1. Exceeding the annual fiscal deficit target is allowed on the grounds of unanticipated trade sanctions in the FRBM Act. 2. Deviation from the fiscal deficit by 1% is allowed in circumstances allowing escape clause. Which of the statements given above is/are correct?

The amendments to the Fiscal Responsibility and Budget Management (FRBM) Act brought a degree of counter-cyclicality to the fiscal policy of India.

Exceeding of the annual fiscal deficit target due to the following grounds is allowed in the FRBM Act:

• National security;

• Act of war;

• National calamity;

• Collapse of agriculture, severely affecting farm output and incomes;

• Structural reforms in the economy with unanticipated fiscal implications; and

• Decline in real output growth of a quarter by at least 3% points below its average of the previous four quarters.

Any deviation from the fiscal deficit target shall not exceed 0.5% of the GDP in a year.

In case of increase in real output growth of a quarter by at least 3% points above its average of the previous four quarters, reduce the fiscal deficit by at least 0.25% of the GDP in a year.