Fiscal Performance of States: An Alternative Approach to Measurement

A C K Nambiar

The IUP Journal of Public Finance, 2010, vol. VIII, issue 3, 7-25

Abstract: Fiscal reform incentives have come to stay in the transfer schemes of the finance commissions in India. To administer such transfers there is a need for evolving sound criteria for monitoring the fiscal discipline of the states. The 11th finance commission evolved a measure of fiscal discipline called Fiscal Self Reliance and Improvement Index (FSRII) constructed out of the ratio of own Revenue Receipts (RR) to own Revenue Expenditure (REX). Since there are limitations in adopting a single indicator-based index, this paper attempts to evolve an alternative index based on four indicators such as revenue effort, degree of self reliance, resource allocative efficiency and deficit. Though fiscal performance of many states corresponded more or less according to the FSRII and alternative index, there were also notable divergences. Overall, it is concluded that it is desirable to have a composite index to measure the fiscal performance of the states.

Date: 2010
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