By Fiscal Health Index (FHI): A Framework for Fiscal Discipline Among Indian States
Why in News
Union Minister Rao Inderjit Singh recently emphasized the importance of the Fiscal Health Index (FHI), developed by NITI Aayog. It is a tool designed to assess and improve fiscal performance at the state level. This initiative comes at a time when the central government is preparing to consolidate debt from FY 2026–27 onward.
What is the Fiscal Health Index?
FHI is a composite index ranking 18 major Indian states based on:
- Revenue Mobilization
- Expenditure Management
- Debt Sustainability
- Fiscal Deficit Management
- Overall Fiscal Stability
It uses standardized data from FY 2022–23 compiled by the Comptroller and Auditor General (CAG).
Key Indicators
| Domain | Indicator Highlights |
| Revenue Mobilization | Tax buoyancy, non-tax revenue ratio |
| Expenditure Management | Capital outlay, expenditure efficiency |
| Debt Sustainability | Debt-to-GSDP, interest payment to revenue ratio |
| Fiscal Deficit Management | Fiscal deficit as % of GSDP |
| Overall Fiscal Stability | Composite fiscal performance score |
Objectives of FHI
- Promote transparency and accountability
- Encourage data-driven policymaking
- Benchmark best fiscal practices
- Support competitive federalism
State Rankings: FHI 2025 (PIB Data)
|
Rank |
State | Score | Strengths |
| 1 | Odisha | 67.8 | Low deficit, high capital outlay |
| 2 | Chhattisgarh | 55.2 | Debt management, non-tax revenue |
| 3 | Goa | 53.6 | Revenue mobilization |
| 4 | Jharkhand | – | Strong non-tax revenue |
| 5 | Gujarat | – | Balanced fiscal indicators |
States Facing Challenges
Punjab, West Bengal, Andhra Pradesh, and Kerala reported:
- High fiscal deficit
- Poor expenditure quality
- Rising debt-to-GSDP ratios
Fiscal Insights
- Top performers allocate ~27% of developmental expenditure to capital spending
- Underperformers (Punjab, WB) allocate only ~10%
- Odisha and Chhattisgarh derive over 21% of revenue from non-tax sources
Understanding Deficits
| Type | Formula | Insight |
| Revenue Deficit | Revenue Expenditure – Revenue Receipts | Shows if daily expenses exceed income |
| Fiscal Deficit | Total Expenditure – (Revenue Receipts + Non-Debt Capital Receipts) | Overall borrowing need |
| Primary Deficit | Fiscal Deficit – Interest Payments | Indicates borrowing for current needs |
| Effective Revenue Deficit | Revenue Deficit – Grants for Capital Expenditure | Focuses on unproductive spending |
Way Forward
- Promote real-time budget dashboards
- Incentivize high FHI performers via Finance Commission grants
- Improve GST and non-tax revenue mechanisms
- Build capacity for fiscal planning at state level
- Focus on capital rather than revenue expenditure
Conclusion
The Fiscal Health Index is more than a scoreboard. It is a guiding framework for long-term fiscal sustainability, enabling India’s states to align with national development priorities.