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CII'S FISCAL PERFORMANCE INDEX TAKES A Constructing Fiscal The six components which have been included in the Results
construction of the index are in no way exhaustive and have
COMPREHENSIVE LOOK AT FINANCIAL HEALTH been included as they provide an idea about the condition of
OF CENTRE & STATE GOVERNMENTS Performance Index (FPI) finances of an entity- Centre or State. Further, equal weights CENTRAL GOVERNMENT’S FISCAL
have been given to all the component indices and the PERFORMANCE INDEX HITS MULTI-YEAR
As an effort in this direction, in the present discussion paper Following Bhide and Panda (2002), a composite Fiscal composite index is derived using the Arithmetic Mean of the HIGH IN 2024-25
1
(which is an updated version of a 2019 CII paper ) an Performance Index (FPI) has been constructed comprising of six sub-indices.
alternative index has been developed viz, CII’s Fiscal six broad components at the Centre for the period 2005-06 to
Performance Index (FPI) at the Centre. This is the first part of 2024-25. Methodology for the For the Centre, the values of the Fiscal Performance Index
the paper. In the subsequent part, a similar index will also be have been plotted in Figure 1. The figure shows that the
constructed for the individual States as the fiscal performance The following components of the composite index are central government's efforts to improve fiscal performance
of the States is often a neglected subject. proposed: (i) Quality of revenue expenditure: measured by the computation of fiscal led to the overall fiscal performance index reaching 70.7 in
share of revenue expenditure other than interest payments, 2024-25, its second-highest value after 2007-08. The sharp
The composite index of fiscal performance consists of six subsidies, pensions and defence in GDP,(ii) Quality of capital performance index rise was driven by improvements in the capital expenditure,
components, reflecting various aspects of fiscal performance expenditure: measured by share of capital expenditure (other
over the last two decades 2005-06 to 2024-25. The choice of than defence) in GDP, (iii) Quality of revenue: ratio of net tax fiscal deficit, and debt indices. This aligns with the fiscal deficit
the starting period of 2005-06 was dictated by the need for revenue to GDP, (iv) Degree of fiscal prudence I: fiscal deficit Composite measures are not new in economics literature. The moderating to 4.8 per cent of GDP in 2024-25, compared
having a period which saw high growth rates just before the to GDP, (v) Degree of fiscal prudence II: revenue deficit to formula for the construction of the UNDP’s Human to an average of 6.5 per cent of GDP over the previous
Development Index (HDI) has been used for the construction
occurrence of the global financial crisis. GDP, and (vi) Debt index: Change in debt and guarantees five years.
to GDP. of the Fiscal Performance Index. The indices are categorised
A comprehensive and multidimensional index consisting of a into ‘Index-I’ and Index-II’. To be sure, the fiscal performance index fell to a record low
larger number of fiscal parameters is not only needed to give The debt component has been taken in addition to the of 26.2 during the peak Covid-19 pandemic year of 2020-21,
proper signals to the Centre and the States, but it is a must for variables used by Bhide and Panda. Specifically, change in debt The Index-I includes variables such as fiscal deficit to GDP, as the government administered significant fiscal stimulus to
revenue deficit to GDP and debt component to GDP, for
reducing the probability of manipulation and the error of (which is a flow variable) along with the guarantees issued by mitigate the economic impact on growth and livelihoods. The
measurement arising out of this (Dholakia, 2005). the Central government has been considered. which lower values are more desirable Index-I is calculated by fiscal & revenue deficit and debt indices fell to their lowest
the following formula:
values, while revenue expenditure index rose to its highest
value as the government attempted to invigorate the
economic prospects through announcing a slew of
th
th
Table 1: Fiscal Performance Index Components Where, Index = The Index value for the i entity for the j welfare-oriented schemes aimed to support growth among
ij
criterion the lowest strata of the population and small & medium
Max = This is the maximum value for the j criterion enterprises.
th
j
Min = This is the minimum value for the j criterion
th
j Subsequently, the fiscal performance index increased to 54.2
Degree of The Index-II comprises of the Revenue Expenditure Index, in 2021-22 as the government accelerated capital expenditure
Quality of fiscal Capital Expenditure Index and Revenue Receipt Index, for to support growth. A further increase in capital expenditure,
Quality of revenue prudence 1 Degree of which higher values are more desirable. It is calculated by the combined with a significant rise in net tax receipts and
capital fiscal following formula: sustained reductions in both fiscal and revenue deficits,
expenditure prudence 2 contributed to further improvements in the index, as it stood
Quality of Debt+ at 61.7 in 2023-24. Notably, following the pandemic, the index
revenue Ratio of net tax Fiscal deficit to Guarantees A higher index value in any of the six sub-indices indicates reading has consistently exceeded the 10-year pre-pandemic
GDP:
revenue to
expenditure Share of capital GDP: Traditionally Revenue deficit improvement, with '0' being the lowest and '100' the highest. average (FY11-20) of 45.1 since 2021-22.
expenditure Dependence on considered as the to GDP:
(other than taxes is best indicator of Indicates the
defence) to condition of fiscal Change in debt
Share of revenue considered to be the fiscal health health as well and guarantees to Figure 1: Fiscal Performance Index for the Centre
expenditure (other GDP: Indicates a more of an entity GDP 72.1 70.7
expenditure
than interest leading to the sustainable 61.7
payments, revenue 55.8 54.2 54.8
subsidies, pensions creation of generation 53.0 49.3 52.6 48.3 46.4
& defence) productive assets strategy 42.1 40.8 40.7 41.1 43.3 41.5 44.1
to GDP: Indicates 37.4
developmental 26.2
expenditure

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 (RE)
(actual)

Note: A higher value of Index indicates a better performance and vice versa
1 Measuring Fiscal Marksmanship: Is Fiscal Deficit the only Measure?, CII Discussion Paper, 2019

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APRIL 2025