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The financial performance of states with low income levels is better than those with higher income, according to a study by the Confederation of Indian Industry(CII).
“At the individual States level, our analysis shows that the high-income States such as Gujarat, Haryana, Maharashtra which are having low fiscal deficit to GDP ratio have performed poorly on the Fiscal Performance Index (FPI) front, while low-income States such as Bihar and Uttar Pradesh which have high fiscal deficit ratio have fared well on the FPI front,”CII study said.
“High-income States have performed poorly mainly on the expenditure quality and own tax receipts index as compared to their low-income counterparts. Though their performance on the deficit prudence index has been above average. This clearly demonstrates the inadequacy of fiscal deficit to GDP ratio in analysing the fiscal performance of States,” the CII study also pointed out.
This study is based on a new assessment of Fiscal Deficit that measures the Government’s revenue and expenditure balance. The composite FPI developed by CII uses multiple indicators to examine quality of Budgets at the Central and State level.
“It is important to study diverse sources of revenue and expenditure heads to truly assess the fiscal situation of a nation. 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,” said Vikram Kirloskar, President, CII.
“This measure of fiscal conditions can better help target Government’s social and capital expenditures keeping in mind fiscal stability. It would also contribute to strategy formulation to manage economic development with macroeconomic prudence,” a CII statement said.
As per the CII FPI, 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 revenues for the Government as compared to one-time income sources.
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