Fiscal Health Index 2025: Assessing India’s State-wise Fiscal Performance

Why in the News?

Dr. Arvind Panagariya, the Chairman of the 16th Finance Commission, recently unveiled the inaugural issue of NITI Aayog’s report, "Fiscal Health Index (FHI) 2025." This comprehensive evaluation tool measures the fiscal performance of Indian states, highlighting key achievements and areas for improvement.

What is the Fiscal Health Index (FHI)?

The Fiscal Health Index (FHI) is a strategic initiative by NITI Aayog designed to systematically assess the fiscal performance of Indian states. By evaluating key financial parameters, the index aims to:

• Promote fiscal discipline among states.
• Guide policy reforms for sustainable and resilient economic growth.

Key Highlights of the FHI 2025 Report

• First Edition: The inaugural report evaluates the fiscal health of 18 major Indian states for the financial year 2022-23.
• Core Parameters: The FHI is built around five critical sub-indices:
  • Quality of Expenditure
  • Revenue Mobilization
  • Fiscal Prudence
  • Debt Index
  • Debt Sustainability

Top Performers in Fiscal Health

Leading States

• Odisha, Chhattisgarh, Goa, Jharkhand, and Gujarat emerged as the best-performing states, demonstrating robust fiscal management and sustainability.

Odisha: The Star Performer

• Composite Score: Odisha secured the highest score of 67.8, excelling across multiple parameters, including:
  • Debt Sustainability
  • Revenue Mobilization
  • Quality of Expenditure

Key Insights from the Report

Capital Outlay

• High-performing states maintained capital outlays of up to 4% of their Gross State Domestic Product (GSDP), ensuring sustained investments in infrastructure and development.

Fiscal Prudence

• These states demonstrated revenue surpluses and effective debt management practices, with interest payments accounting for only 7% of revenue receipts on average.

Expenditure Management

• Odisha, in particular, achieved a debt-to-GSDP ratio of 24%, balancing developmental expenditure with fiscal sustainability.

Conclusion

The Fiscal Health Index 2025 serves as a crucial benchmark for Indian states to evaluate their financial strategies and adopt best practices. By focusing on fiscal discipline and sustainable policies, states can ensure long-term economic growth and resilience.