Quality of Public Expenditure Index
Context:
Recently, the RBI introduced the Quality of Public Expenditure Index to assess the efficacy of the allocation of public funds to the Centre and the state governments.
Relevance:
GS-03 (Economy)
About Quality of Public Expenditure (QPE) Index
- The QPE Index is a tool that helps to see how efficiently and effectively government spending has happened, with the major focus on long-term economic growth.
- Approach: The index primarily shows the spending that has happened with respect to its aligned developmental goals, rather than just measuring the total expenditure.
Key Indicators of QPE Index
The index is based on five major indicators:
- Capital Outlay to GDP Ratio – Measures the share of GDP spent on infrastructure (roads, power, railways). A higher ratio indicates better quality expenditure.
- Revenue Expenditure to Capital Outlay Ratio – Compares routine expenses (salaries, pensions, subsidies) with asset creation. A lower ratio suggests better fiscal priorities.
- Development Expenditure to GDP Ratio – Tracks spending on key sectors like education, healthcare, and R&D, highlighting its impact on economic productivity.
- Development Expenditure as a Share of Total Government Expenditure – A higher percentage indicates greater priority to developmental sectors.
- Interest Payments to Total Expenditure Ratio – Evaluates the financial burden of past borrowings. A lower ratio signifies stronger fiscal health.
Significance of QPE Index
- Guides Fiscal Policy: Helps policymakers assess the efficiency of resource allocation.
- Improves Spending Efficiency: Encourages a shift from revenue-heavy expenditures to productive capital investments.
- Ensures Economic Stability: A well-balanced expenditure pattern supports stable economic growth and financial sustainability.
