Fiscal Health Index 2025 by Niti Aayog

In News: The Fiscal Health Index (FHI) 2025 launched by NITI Aayog on January 24, 2025, is a comprehensive report designed to assess the fiscal health of 18 major Indian states. This inaugural report aims to provide data-driven insights to guide state-level policymakers in improving fiscal governance, promoting economic resilience, and ensuring national stability. 

Overview of the Fiscal Health Index 2025

Purpose and Objectives:

   - The FHI 2025 is an annual publication that evaluates the fiscal health of states based on key financial parameters. It aims to foster informed decision-making, promote fiscal discipline, and encourage sustainable economic growth .

   - The report aligns with India’s long-term vision of achieving “Viksit Bharat @2047”, emphasizing the importance of fiscal discipline at the state level for national economic transformation .

Coverage and Data Sources:

   - The report covers 18 major states that contribute significantly to India’s GDP, demographics, public expenditure, and revenues. It assesses the fiscal year 2022-23, supplemented by trends from 2014-15 to 2021-22 .

   - Data is sourced from the Comptroller and Auditor General of India (CAG), ensuring reliability and accuracy. 

The FHI evaluates states based on five major sub-indices:

1. Quality of Expenditure: Measures the efficiency and focus on developmental spending, such as infrastructure and public services .

2. Revenue Mobilisation: Assesses the state’s ability to generate tax and non-tax revenue .

3. Fiscal Prudence: Evaluates the state’s ability to manage deficits and maintain fiscal discipline .

4. Debt Index: Measures the state’s debt levels relative to its revenue .

5. Debt Sustainability: Assesses the state’s capacity to manage debt without fiscal stress .

State Rankings and Categories

The FHI categorizes states into four groups based on their fiscal performance:

Achievers (Top Performers):

   - Odisha (67.8), Chhattisgarh (55.2), Goa (53.6), and Jharkhand.

   - These states excel in revenue mobilization, expenditure management, and debt sustainability. They have low fiscal deficits, high capital outlays, and effective non-tax revenue mobilization .

Front-Runners:

   - Maharashtra, Uttar Pradesh, Telangana, Madhya Pradesh, and Karnataka.

   - These states demonstrate balanced fiscal management, consistent tax revenue growth, and improved debt sustainability .

Performers:

   - Tamil Nadu, Bihar, Rajasthan, and Haryana.

   - These states show moderate fiscal health but need improvement in revenue and debt management .

Aspirational:

   - Punjab, Andhra Pradesh, West Bengal, and Kerala.

   - These states face significant fiscal challenges, including high fiscal deficits, low revenue mobilization, and rising debt burdens .

 

Significance of the Fiscal Health Index

1. Promotes Fiscal Discipline:The FHI provides data-driven insights to help states adopt sound financial practices, ensuring sustainable economic growth.

2. Encourages Healthy Competition: The ranking system motivates states to benchmark their fiscal practices and improve performance .

3. Supports Cooperative Federalism: The FHI fosters collaboration between the Centre and states to address regional disparities and drive holistic development .

4. Guides Policy Reforms: The report offers actionable insights for policymakers to implement targeted reforms and improve fiscal governance .

Conclusion

The FHI aligns with India’s vision of becoming a developed nation by 2047. By promoting fiscal discipline and sustainable growth, the index aims to strengthen India’s economic resilience and ensure balanced regional development .