Public Sector Performance and Efficiency Assessment of Indian States

Abstract

The purpose of this paper to analyze public spending of 19 Indian states on the basis of their performance. We have computed Public Sector Performance (PSP) scores with their representative sub-indicators for the period of 2006-2015. Total 10 years of data have taken of these sub-indicators to capture the structural changes in the economy. This PSP score is divided into two parts namely, PSP Opportunity and PSP Musgravian. Both the PSPs have their own representative variables and the total PSP scores are the composite average of these indicators. Based on these PSPs scores we have computed states efficiency using Data Envelopment Analysis (DEA) and ranked the states according to their efficiency. We applied three DEA models with consideration of State Total Revenue Expenditure (TRE) as an input variable, further we have considered PSP Opportunity, PSP Musgravian and Total PSP scores as output variables in these models. The input-oriented DEA analysis reveals that states should have decreased public spending by 57.88%. The output-oriented DEA models conclude that state governments would have potential to increase the efficiency by 14.16% without compromising public spending. Various policy suggestions also discussed by incorporating empirical findings at last section of this paper.