Odisha, Chhattisgarh, Goa and Jharkhand have emerged as top-performing ‘achievers’ among the states listed in NITI Aayog’s first Fiscal Health Index (FHI) report.

Highlights of the report:

The Fiscal Health Index (FHI) 2025 aims to throw light on the fiscal status at the sub-national level and guide policy reforms for sustainable and resilient economic growth.

It provides a comprehensive assessment of the fiscal health of 18 major states, based on five key sub-indices:

i) Quality of expenditure

ii) Revenue mobilisation

iii) Fiscal prudence

iv) Debt index

v) Debt sustainability. 

Top Performers

• With a cumulative score of 67.8, Odisha tops the ranking in fiscal health among 18 major states, followed by Chhattisgarh and Goa with scores of 55.2 and 53.6, respectively.

• The ‘achiever states’ display strong fiscal health, excelling in revenue mobilisation, expenditure management, and debt sustainability.

• Improvements are seen in states like Jharkhand, which has strengthened fiscal prudence and debt sustainability, while Karnataka faces a decline due to weaker performance in expenditure quality and debt management.

• These interstate disparities highlight the need for targeted reforms to address specific fiscal challenges and ensure sustainable growth.

Aspirational States

• Punjab, Kerala, and West Bengal faced debt sustainability and revenue mobilisation challenges, emphasizing the need for fiscal reforms.

Sub-Index Insights

Quality of Expenditure

• Madhya Pradesh and Chhattisgarh prioritised social and economic services, investing in health and education.

• Punjab and Rajasthan lagged in capital expenditure, affecting long-term development.

Revenue Mobilisation

• Leaders: Odisha, Goa, and Chhattisgarh excelled by leveraging non-tax revenues from mining and industries.

• Challenges: Bihar and West Bengal struggled with low own-tax revenues, heavily relying on central transfers.

Fiscal Prudence

• Odisha and Jharkhand maintained lower fiscal deficits, ensuring efficient resource allocation.

• Kerala and Andhra Pradesh faced persistent revenue deficits, impacting fiscal stability.

Debt Index

• Maharashtra & Gujarat showcased robust debt management, maintaining low debt-to-GSDP ratios.

• Punjab and Haryana struggled with high debt burdens and rising interest payments.

Debt Sustainability

• Odisha and Chhattisgarh ensured economic growth outpaced interest payment growth, demonstrating sustainable debt management.

• West Bengal and Punjab faced growing fiscal stress due to persistent deficits.

Recommendations

• Revenue Diversification: Enhance non-tax sources and improve tax compliance.

• Capital Expenditure Focus: Prioritise infrastructure, health, and education for long-term growth.

• Debt Management: Implement a comprehensive debt sustainability framework to reduce fiscal stress.

• Transparency: Strengthen reporting mechanisms and adherence to fiscal responsibility norms for accountability and public trust.

(The author is a trainer for Civil Services aspirants.)