The Parliament on Wednesday approved a watered down version of the fiscal responsibility bill aimed at disciplining state finances that left out clauses binding the government to tough fiscal deficit targets.

The key Fiscal Responsibility and Budget Management Bill was approved by the Lok Sabha by a voice vote.

The centre and state governments have a combined fiscal deficit of close to 10 percent, one of the highest in the world, leaving little money for health, education and social development in the world's second most populous country.

The Bill says the government should undertake measures to eliminate the revenue deficit by March 2008 and build a sufficient revenue surplus.

But the government can exceed any revenue deficit limit on grounds of national security, natural calamities or 'any exceptional grounds which it may specify'.

The bill also makes it mandatory for the government to present a medium-term fiscal policy, fiscal policy strategy statement and macro-economic framework statement in Parliament every year.

The Bill had originally aimed to eliminate the government's revenue deficit and cut the fiscal deficit to two per cent of GDP in five years in Asia's third largest economy.

But a parliamentary panel rejected clauses binding the government to deficit targets.

International rating agencies cite the large fiscal deficit as the biggest obstacle in the way of the world's 12th largest economy achieving double digit growth rates needed to cut poverty levels.