CII index to assess Central, State budgets

New Delhi: Industry body CII on Wednesday said it has come out with a 'Fiscal Performance Index' to assess quality of budgets presented by the Centre and state governments. "The composite Fiscal Performance Index (FPI) developed by CII is an innovative tool using multiple indicators to examine quality of Budgets at the Central and State levels," CII said in a statement.

The index has been constructed using UNDP's Human Development Index methodology, CII said, adding the proposed composite index of fiscal performance comprises six components for holistic assessment of the quality of government budgets.

"These include 1) quality of revenue expenditure: measured by the share of revenue expenditure other than interest payments, subsidies, pensions and defence in GDP. 2) Quality of capital expenditure: measured by share of capital expenditure (other than defence) in GDP. 3) Quality of revenue: ratio of net tax revenue to GDP (own tax revenue in case of States). 4) Degree of fiscal prudence I: fiscal deficit to GDP. 5) Degree of fiscal prudence II: revenue deficit to GDP and 6) Debt index: Change in debt and guarantees to GDP," it added.

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 sources, it said.

In view of the results obtained from its analysis, CII said it recommends that the Fiscal Responsibility and Budget Management (FRBM) Act which sets targets for the governments to reduce fiscal deficits should not solely focus on one component. "Instead, a holistic performance of all entities viewed from all angles of expenditure quality, revenue receipts quality, and fiscal prudence should be taken into consideration," CII President Vikram Kirloskar said.