NITI Aayog launches the “Fiscal Health Index 2025”

27-01-2025

The Fiscal Health Index (FHI) 2025, launched by NITI Aayog on January 24, 2025, to assess the fiscal status of 18 major states in India for the financial year 2022-23.
The report is meant to provide data-driven insights to guide state-level policymakers in improving fiscal governance, promoting economic resilience, and ensuring national stability.
The FHI 2025 will be published annually and aims to highlight the fiscal status of states based on key financial parameters.
The report uses data from the Comptroller and Auditor General of India (CAG) for the fiscal year 2022-23, supplemented by trends from 2014-15 to 2021-22.
FHI covers states contributing significantly to India’s GDP, demographics, public expenditure, and revenues.
The states are categorized into four groups: Achievers, Front-Runners, Performers, and Aspirational based on their fiscal health.

State Categories & Key Performance Indicators

Category	States	Key Characteristics
Achievers	Odisha, Chhattisgarh, Goa, Jharkhand	High capital outlay, low fiscal deficit, sustainable debt, revenue surplus.
Front-Runners	Maharashtra, Uttar Pradesh, Telangana, MP, Karnataka	Balanced fiscal management, consistent tax growth, improved debt sustainability.
Performers	Tamil Nadu, Bihar, Rajasthan, Haryana	Moderate fiscal health; some need improvement in revenue and debt management.
Aspirational	Punjab, Andhra Pradesh, West Bengal, Kerala	High fiscal deficits, low revenue generation, rising debt burden.

The FHI evaluates the fiscal health of states on the basis of 5 major sub-indices:

Components of the Fiscal Health Index:

The FHI aligns with India’s long-term vision of becoming a Viksit Bharat @2047
It encourages states to adopt good fiscal policies and improve resource management, contributing to long-term economic stability.
The ranking system motivates states to benchmark their fiscal practices, promoting healthy competition and driving improvements.
The FHI will be published annually, providing continuous updates and insights for policymakers to track progress and implement necessary reforms.

Quality of Expenditure: This refers to how effectively a state spends its money. High-quality expenditure means the state is spending money on projects that bring long-term benefits, like infrastructure or public services, rather than on wasteful spending.
Revenue Mobilisation: This is about how well a state collects its revenue, mainly through taxes and other income sources. The better a state is at collecting revenue, the more money it has to spend on public needs without needing to borrow.
Fiscal Prudence: This is the practice of managing government finances responsibly. It means making sure that spending doesn’t exceed income, avoiding unnecessary borrowing, and ensuring money is spent wisely.
Debt Index: This measures the amount of debt a state has in relation to its income. A higher debt index means the state is more reliant on borrowing, which can be a problem if not managed carefully.
Debt Sustainability: This refers to whether a state can manage its debt without facing financial difficulties. If a state’s debt grows too large, it may struggle to repay it, making its finances unstable.

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