NITI Aayog's Fiscal Health Index

Context:

NITI Aayog has launched the Fiscal Health Index (FHI) 2025 to offer a detailed assessment of the fiscal performance of Indian states. This index evaluates states' fiscal health and aims to guide reforms for promoting sustainable economic growth.

· The report titled 'Fiscal Health Index 2025' ranked States for 2022-23, covering 18 major States that drive the Indian economy in terms of their contribution to India's GDP, demography, total public expenditure, revenues, and overall fiscal stability.

What is the Fiscal Health Index (FHI)?

The Fiscal Health Index (FHI) is a comprehensive initiative by NITI Aayog to assess and monitor the fiscal stability of states across India. The index is based on five key sub-indices:

1. Quality of Expenditure

2. Revenue Mobilization

3. Fiscal Prudence

4. Debt Index

5. Debt Sustainability

The index is derived using data from the Comptroller and Auditor General of India (CAG) for the fiscal year 2022-23 and incorporates trends from 2014-15 to 2021-22. The FHI focuses on states that contribute significantly to India’s GDP, demographics, public expenditure, and revenue generation.

Key Highlights

Top Performers (achievers)

Odisha: Ranked first with a score of 67.8, excelling in debt management and sustainability.
Chhattisgarh: Secured the second position with 55.2, demonstrating strong fiscal prudence and balanced fiscal policies.
Goa: Achieved third place with a score of 53.6, reflecting its balanced approach to fiscal management and revenue generation.

Underperformers- (aspirational')

Kerala: Scored 29.7, struggling with poor debt sustainability and low quality of expenditure.
Punjab: With a score of 28.4, Punjab faces challenges with low revenue mobilization and high fiscal deficits.
West Bengal: Scored 27.8, grappling with issues related to debt index and overall fiscal management.
Andhra Pradesh: Ranked last with a score of 26.9, hindered by consistently high fiscal deficits.

Top-performing states like Odisha, Chhattisgarh, Goa, and Jharkhand have demonstrated:

High capital outlay of up to 4% of their Gross State Domestic Product (GSDP)
Effective revenue mobilization
Revenue surpluses
Low interest payments (around 7% of revenue receipts)

Significance of the FHI

The Fiscal Health Index promotes fiscal discipline by providing data-driven insights, encouraging healthy competition among states. It also helps in identifying state-specific challenges and guiding the necessary reforms to address fiscal imbalances.

· It supports cooperative federalism and aligns with India’s vision of achieving a “Viksit Bharat @2047” by tracking fiscal health annually and ensuring continuous improvement.