Why in the News?

The NITI Aayog has launched the Fiscal Health Index (FHI), 2025 to provide a comprehensive assessment of the fiscal performance of 18 major states in India.

What is the Fiscal Health Index (FHI)?

• The FHI is an initiative by NITI Aayog to analyze the fiscal health of states and guide reforms for sustainable economic growth.
• It evaluates states using a composite index derived from five key sub-indices:

1. Quality of Expenditure
2. Revenue Mobilization
3. Fiscal Prudence
4. Debt Index
5. Debt Sustainability

• 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.

Key Highlights:

• Top Performers:
  • Odisha: Ranked first (67.8), excelling in debt management and sustainability.
  • Chhattisgarh: Secured second position (55.2), showcasing strong fiscal prudence.
  • Goa: Achieved third place (53.6), reflecting balanced fiscal practices.
• Underperformers:
  • Kerala: (29.7), struggling with poor debt sustainability and expenditure quality.
  • Punjab: (28.4), grappling with low revenue mobilization and high deficits.
  • West Bengal: (27.8), facing challenges in debt index and fiscal management.
  • Andhra Pradesh: (26.9), hindered by high fiscal deficits.
• Regional Insights:
  • Southern States: Telangana leads (47.5), while Tamil Nadu (30.2), Kerala (29.7), and Andhra Pradesh (26.9) lag.
  • Developmental Expenditure: Top states allocate up to 73% of total expenditure to growth-focused activities.

Significance

• Promotes fiscal discipline through data-driven insights.
• Guides state-specific reforms to address disparities.
• Encourages healthy competition among states.
• Supports cooperative federalism, aligning with “Viksit Bharat @2047”.
• Tracks fiscal health annually to ensure continuous improvement.

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