Context: Confederation of Indian Industry (CII) has launched a Fiscal Performance Index (FPI) to assess state and central budgets.

Components of CII:

The Index incorporates qualitative assessments of revenue expenditure, capital expenditure, revenues, fiscal prudence and the level of public debt.

Key findings:

• The CII has used this index to analyse state and central budgets from 2004-05 to 2016-17.
• The study found that despite improvement a reduction in the fiscal deficit between FY13 and FY18, the overall performance of the budget has been remained steady with improvements only in FY16 and FY17.
• This is largely due to moderation in the revenue, capital expenditure and and net tax revenues indices. 
• The analysis also shows that the combine performance of all state budgets has improved despite worsening of fiscal deficit numbers because of improvements in revenue and capital expenditure indices. 
• The study also points out that relatively high income states including Gujarat, Haryana and Maharashtra which are presumed to have good fiscal health because of low fiscal deficit to GDP ratio do not perform well on the composite FPI because of poor expenditure and revenue quality compared to other states.
• Other states including, Madhya Pradesh, Andhra Pradesh, Uttar Pradesh and Bihar have done well on the FPI because of their good performance in revenue and capital expenditure indices. 

Need for FPI:

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.

Way ahead- recommendations from CII:

the government should attempt to broaden the tax base, increase investments in education and healthcare as well as maintenance of assets and well as increase investments in infrastructure, affordable housing and encourage public sector undertakings to also increase capital expenditure by limiting dividends to the government.