Why in the News?

The Quality of Public Expenditure (QPE) Index, developed by the RBI, evaluates how efficiently government funds are used, focusing on expenditure composition and its long-term impact on economic growth.

About the QPE Index

• The QPE Index by the Reserve Bank of India (RBI) measures how effectively government funds are utilized.
• It focuses on fiscal discipline, capital investment, and efficient allocation of public resources for long-term growth.
• Key Indicators of the QPE Index:

1. Capital Outlay to GDP Ratio: Measures government spending on infrastructure as a percentage of GDP. Higher ratio = better quality expenditure.
2. Revenue Expenditure to Capital Outlay Ratio: Lower ratio preferred, as excessive spending on salaries & subsidies reduces funds for development.
3. Development Expenditure to GDP Ratio: Tracks spending in education, healthcare, infrastructure, improving human capital & productivity.
4. Development Expenditure as % of Total Expenditure:  Higher share indicates better resource allocation.
5. Interest Payments to Total Expenditure Ratio:  Lower ratio = better debt management & fiscal sustainability.

Key Findings from RBI’s QPE Index Analysis:

• 1991-2003: Post-liberalization, focus on reducing fiscal deficit led to a decline in public investment.
• 2003-2008:  FRBM Act (2003) improved fiscal discipline, increasing capital spending & state revenues.
• 2008-2013: Global Financial Crisis (GFC) led to higher government spending, increasing fiscal deficits but supporting recovery.
• 2013-2017: 14th Finance Commission (2015) increased states’ share in central taxes, boosting development expenditure.
• 2017-2020:  GST implementation challenges affected the Centre’s revenues, but states benefited from higher tax shares.
• 2020-Present:  Record capital expenditure boosted infrastructure & economic recovery, improving public expenditure quality.

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