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Fiscal Health Index 2025

Context

The Fiscal Health Index (FHI) by NITI Aayog assesses the financial stability of 18 major Indian states that contribute significantly to the country’s GDP, population, and public finance.

Introduction

• Odisha ranks first, followed by Chhattisgarh, Goa, Jharkhand, and Gujarat.
• Since states handle two-thirds of public spending and one-third of total revenue, their financial health is crucial for the nation’s economic stability.
• The index, based on data from the Comptroller and Auditor General of India (CAG), covers the Financial Year 2022-23.

Objectives of the Fiscal Health Index

• To compare states’ fiscal health using standardized indicators.
• To identify strengths and weaknesses in financial management.
• To promote transparency, accountability, and better fiscal governance.
• To assist policymakers in making informed financial decisions.

Key Indicators Evaluated

1. Tax Buoyancy
   • Measures how well tax revenue grows in relation to economic growth.
   • Evaluates states’ revenue collection efficiency.
2. ​Debt-to-GSDP Ratio
   • Compares a state’s total debt to its Gross State Domestic Product (GSDP).
   • Indicates a state’s ability to repay debts.
3. Expenditure Management
   • Assesses efficiency in spending allocation and fiscal discipline.
   • Focuses on prioritization of capital expenditure.
4. Debt Management
   • Examines states’ debt levels, interest payments, and sustainability.
5. Fiscal Deficit Management
   • Evaluates fiscal deficit as a percentage of GSDP and compliance with statutory limits.
6. Overall Fiscal Sustainability
   • Provides a holistic assessment of revenue, expenditure, debt, and deficit.

Key Findings

• Odisha ranks first (67.8), excelling in debt sustainability and fiscal management.
• Chhattisgarh (55.2) and Goa (53.6) follow, excelling in revenue generation and debt control.
• Non-tax revenue mobilization is highest in Odisha, Jharkhand, Goa, and Chhattisgarh, contributing 21% of total revenue.
• States facing fiscal challenges include Punjab, Andhra Pradesh, West Bengal, and Kerala, struggling with high deficits and poor debt sustainability.
• Capital expenditure allocation is highest (27%) in states like Madhya Pradesh, Odisha, Goa, Karnataka, and Uttar Pradesh.
• West Bengal, Andhra Pradesh, Punjab, and Rajasthan allocate only 10% of their expenditure to capital investments.
• Rising debt concerns exist for West Bengal and Punjab, with increasing debt-to-GSDP ratios.

Debt Sustainability

• Ensures states can repay debts without defaulting or requiring financial aid.
• Odisha, Chhattisgarh, and Goa perform best in debt management.
• Punjab, Andhra Pradesh, West Bengal, and Kerala face challenges in debt sustainability.

Conclusion

• The Fiscal Health Index 2025 helps states monitor financial stability and performance.
• It emphasizes the need for strong revenue generation, debt control, and efficient spending.
• The report has been shared with all States/UTs to guide them toward sustainable fiscal practices.
• States must focus on fiscal prudence and responsible financial management to ensure long-term economic stability.