GS3 ECONOMY:
The Reserve Bank of India (RBI) analyzed public spending quality using a Quality of Public Expenditure (QPE) index, factoring in capital outlay, revenue spending, and development expenditure:
Six Phases Since 1991:
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- 1991–95 (Post-Liberalization): Fiscal consolidation cut capital and developmental spending.
- 1996–2003 (Pre-FRBM): Rising debt and stagnant public investment.
- 2003–08 (FRBM Era): Fiscal discipline under the Fiscal Responsibility and Budget Management Act improved capital outlays and reduced interest payments.
- 2008–13 (Global Financial Crisis): Countercyclical spending strained fiscal stability but aided recovery.
- 2013–20 (GST & Devolution): GST rollout and higher state funding reshaped priorities.
- 2020–25 (Pandemic Response): Focus on infrastructure-led recovery increased capital spending despite higher borrowing.
Key Findings:
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- High-quality spending correlates with better economic growth and social outcomes.
- Centre’s spending quality drives GDP growth, while states’ spending boosts the Human Development Index (HDI).
Benefits:
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- Enhances public goods like education, healthcare, and infrastructure.
- Encourages private investment by boosting demand and capacity.
- Promotes macroeconomic stability through sustainable growth.
Risks: Excessive spending can lead to deficits, higher interest rates, reduced savings, and loss of investor confidence.