Why in News?

  • Confederation of Indian Industry (CII) has come out with a ‘Fiscal Performance Index’ to assess quality of budgets presented by the Centre and state governments.

Fiscal Performance Index (FPI):

  • The composite FPI developed by CII is an innovative tool using multiple indicators to examine quality of Budgets at the Central and State Level
  • The index has been constructed using UNDP’s Human Development Index methodology which comprises six components for holistic assessment of the quality of government budgets.

Why need such an index?

  • A single criterion such as the ‘fiscal deficit to GDP ratio’ does not tell us anything about the quality of the Budget.
  • Hence, the Government should use multiple indicators to measure the quality of Budgets at the Central and the State levels rather than a single indicator

Components of FPI:

  • Quality of revenue expenditure: measured by the share of revenue expenditure other than interest payments, subsidies, pensions and defence in GDP
  • Quality of capital expenditure: measured by share of capital expenditure (other than defence) in GDP
  • Quality of revenue: ratio of net tax revenue to GDP (own tax revenue in case of States)
  • Degree of fiscal prudence I: fiscal deficit to GDP
  • Degree of fiscal prudence II: revenue deficit to GDP and
  • Debt index: Change in debt and guarantees to GDP

Other measures of FPI:

  • As per the new index, expenditure on infrastructure, education, healthcare and other social sectors can be considered beneficial for economic growth
  • At the same time, tax revenues are sustainable sources of revenue for the government as compared to one-time income source


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