Fresh thinking is required on a responsible fiscal policy framework. The fiscal situation of the central government is worse than it appears, given the acceleration of inflation from 2006 to 2014. These inflation shocks effectively reduced the value of outstanding debt. This has harmed the interests of households but has reduced the debt burden of the government. These inflation shocks are unlikely to recur in the future.

This warrants a fresh thinking on a responsible fiscal policy framework. This should feed into a new FRBM Act. The modified Act needs to take into account business cycles and to have penalties that are strong enough so that it cannot be ignored.

Responsible fiscal policy framework should adapt to cyclical risks, mandate enforceable penalties, and protect households. Revision of the fiscal policy framework is required because past inflation episodes reduced the real value of central government debt while harming household welfare. The article recommends that a redesigned FRBM Act incorporate business cycle adjustments, recognise inflation's asymmetric effects, and provide sufficiently strong, enforceable penalties so fiscal rules cannot be ignored.