Saturday, 15 Feb, 2025
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The first Fiscal Health Index (FHI) 2025 was introduced by the National Institution for Transforming India (NITI Aayog) in an effort to improve fiscal governance.
Odisha, Chhattisgarh, Goa, and Jharkhand are the top-performing states out of the 18 Indian states that make major contributions to the country's GDP, population, total public spending, revenues, and overall fiscal stability, according to a new analysis from NITI Aayog. The first Fiscal Health Index (FHI) 2025 was introduced by the National Institution for Transforming India (NITI Aayog) in an effort to improve fiscal governance. With data-driven insights that will direct state-level policy initiatives, the Index offers a thorough assessment of the fiscal health of 18 major Indian states for 2022–2023. An assessment method for determining the economic health of Indian states, the economic Health Index (FHI) identifies particular areas that require improvement.
Officials from India's top think tank highlighted the influence of competitive populism and subsidies on the quality of spending during the report's launch on Friday, January 24, 2025. They also emphasized how climate change will put more fiscal pressure on states. Madhya Pradesh has the highest quality of expenditure score (59.7 points out of 100), followed by Chhattisgarh and Bihar. With respective scores of 4.2 and 4.7, Kerala and Punjab had the lowest scores. With a focus on developmental spending on social and economic services, the index examines the overall quality of spending.
Using information from the Comptroller and Auditor General (CAG), the composite FHI was created with an emphasis on five sub-indices: Debt Index, Debt Sustainability, Revenue Mobilization, Fiscal Prudence, and Quality of Expenditure. Additionally, a thorough state-by-state study has been reported to highlight fiscal health risks specific to each state based on the five major sub-indices.
Odisha, Chhattisgarh, Goa, Jharkhand, and Gujarat are the top five states in terms of performance, whereas Haryana, Kerala, West Bengal, Andhra Pradesh, and Punjab are the bottom five. The performance of the states differs among the five subcategories, nevertheless. Uttar Pradesh and Bihar, for example, score highly on the Quality of Expenditure scale but poorly on the Revenue Mobilization scale. Karnataka ranks among the three aspirational states in terms of debt sustainability, despite performing well on the majority of indicators. Due to their substantial mining revenue collection, Odisha and Chhattisgarh have done well under revenue mobilization, with their own non-tax revenue expanding significantly. Nonetheless, Chhattisgarh performs worse than several other states in terms of debt sustainability.
Source: Fiscal Health Index 2025
With a highest overall index score of 67.8, Odisha is clearly the leader in fiscal health. It also excels in the rankings for Debt Sustainability (64.0) and Debt Index (99.0), while maintaining above-average ratings for Revenue Mobilization and Quality of Expenditure. Its strong capital expenditures in relation to its Gross State Domestic Product (GSDP), low fiscal deficits, and sound debt profile all contribute to its sound financial position.
With ratings of 55.2 and 53.6, respectively, Chhattisgarh and Goa lag behind Odisha. Goa has been acknowledged for its revenue mobilization efforts, while Chhattisgarh is especially renowned for its impressive debt index. Both states have shown excellent budgetary management by striking a balance between revenue and expenses. With improved debt sustainability, increased fiscal restraint, and improved revenue mobilization, Jharkhand has improved its fiscal health significantly, moving up from a rank of 10 in the 2015–19 to 2021–22 period to a rank of 4 in FY 2022–23.
Fiscal Health Index 2025: India’s top 10 best-performing states in FY 2023
|
Rank 2022-23 |
State |
FHI Score |
Quality of Expenditure |
Revenue Mobilization |
Fiscal Prudence |
Debt Index |
Debt Sustainability |
|
1 |
Odisha |
67.8 |
52 |
69.9 |
54 |
99 |
64 |
|
2 |
Chhattisgarh |
55.2 |
55.1 |
56.5 |
56 |
79.6 |
29 |
|
3 |
Goa |
53.6 |
45.5 |
87.1 |
59.4 |
51 |
25.2 |
|
4 |
Jharkhand |
51.6 |
47.3 |
45.7 |
62.4 |
66.9 |
35.7 |
|
5 |
Gujarat |
50.5 |
40 |
48.7 |
52.7 |
69 |
42 |
|
6 |
Maharashtra |
50.3 |
37.1 |
59.1 |
41.8 |
76.4 |
36.8 |
|
7 |
Uttar Pradesh |
45.9 |
45.8 |
34.6 |
44.7 |
59.9 |
44.5 |
|
8 |
Telangana |
43.6 |
36.9 |
75.2 |
40.8 |
53.3 |
11.7 |
|
9 |
Madhya Pradesh |
42.2 |
59.7 |
27.6 |
35.6 |
61 |
27.2 |
|
10 |
Karnataka |
40.8 |
47.4 |
43.9 |
43.9 |
62.2 |
6.7 |
Source: Fiscal Health Index 2025
Telangana, Madhya Pradesh, Karnataka, Maharashtra, and Uttar Pradesh have all been marked "front-runners." On the other hand, the states with the worst performance—Punjab, Andhra Pradesh, West Bengal, and Kerala are categorized as "aspirational" because of their severe financial difficulties.
Andhra Pradesh suffers from a large fiscal deficit, West Bengal struggles with revenue mobilization and debt indices, Punjab and Kerala struggle with low-quality spending and debt sustainability, and Haryana's weak debt profile makes its financial problems worse.
Vice Chairman of NITI Aayog Suman Bery cautioned that states like Odisha and Jharkhand, which rely heavily on coal royalties for their revenue, will be negatively impacted by climate change. “The future is not going to be like the present or the past, largely because of climate change. Climate change is going to affect the expenditure side (also), particularly when we come to the cost of adaptation,” Bery said. He went on to say that a large portion of the funding required to address climate change would be at the state level, and that the think tank is trying to finance a significant push for state investment. “Some of the market incentives for fiscal discipline that exist in other federations are absent (in India),” added Bery, comparing India to other federations such as the US or several Latin American nations.
