Second Edition of Fiscal Health Index Released

Context: NITI Aayog has released the second edition of the Fiscal Health Index for the financial year 2023-24 for assessing and comparing the fiscal performance of Indian States. The first edition of the Fiscal Health Index focused on 18 Major Indian States; however, the second edition evaluated both the 18 Major States and 10 North-Eastern & Himalayan States, making the index more inclusive and representative. Odisha has consistently led the Fiscal Health Index among Indian States.

Parameters used in Fiscal Health Index

1. Quality of Expenditure: Reflects how effectively a state deploys its resources, with emphasis on productive spending. Higher quality expenditure indicates better service delivery, stronger growth potential and healthier long-term fiscal outcomes.
2. Revenue Mobilisation: Captures a state’s capacity to generate its own tax and non-tax revenues, measured through tax efficiency, buoyancy, base expansion and collection practices. Strong revenue mobilization reduces dependence on central transfers and borrowing, strengthening fiscal autonomy and stability.
3. Fiscal Prudence: Refers to the discipline with which a state manages its deficits, adheres to fiscal rules and controls committed expenditures. States with higher fiscal prudence have sustainable fiscal deficits, avoid persistent revenue shortfalls, abide by FRBM norms, thus ensuring balanced and responsible fiscal management.
4. Debt Index: Assesses size, composition and burden of a state’s outstanding liabilities, including market borrowings and others. A favorable debt index reflects moderate debt levels, efficient debt composition and manageable debt service costs relative to the state’s economic size.
5. Debt Sustainability: Evaluates a State’s long term ability to service debt without creating fiscal stress, based on interest payment relative to revenues, primary balance trends, and projected dynamics. Sustainable debt means growth and revenues are sufficient to meet obligations without constraining essential expenditure

Fiscal Parameters for Fiscal Health Index for 18 Major States

Fiscal Parameters for Fiscal Health Index for 10 North-Eastern & Himalayan States

Second Edition of Fiscal Health Index PDF

Results and Analysis from Fiscal Health Index 2026

For 18 Large Indian States

• Achiever: Odisha (1); Goa (2); Jharkhand (3)
• Front Runner: Gujarat (4); Maharashtra (5); Chhattisgarh (6); Telangana (7); Uttar Pradesh (8); Karnataka (9)
• Performer: Madhya Pradesh (10); Haryana (11); Bihar (12); Tamil Nadu (13); Rajasthan (14)
• Aspirational: Kerala (15); West Bengal (16); Andhra Pradesh (17); Punjab (18).

For North-Eastern & Himalayan States

• Achiever States: Arunachal Pradesh (First); Uttarakhand (Second)
• Performer States: Assam, Meghalaya, Mizoram, Sikkim, Tripura
• Aspirational States: Himachal Pradesh, Manipur, Nagaland

Importance of Fiscal Health of States

The FHI is designed to be more than just a ranking system; it functions as a structured diagnostic tool to help states identify vulnerabilities and support evidence-based policymaking.

• Growing importance of debt of States in overall public debt: Currently, States in aggregate account for almost one-third of general government debt. Thus, sustainability of national public finances is closely linked to the fiscal trajectory of states.
• Spending Power: States account for nearly two-thirds of India’s total public expenditure and a substantial share of public investment.
• Developmental Outcomes: States carry the primary responsibility for infrastructure, social development, and the delivery of public services (e.g., healthcare and education).
• Diverse Fiscal Landscapes: There is significant diversity in the revenue capacity and expenditure priorities across states. For instance, “Achiever” states like Odisha, Goa, and Jharkhand demonstrate high own-tax shares (above 60%) and low fiscal deficits.
• Structural Challenges: Many states face “structural rigidity” due to high committed expenditures—such as salaries, pensions, and interest payments—which “crowd out” productive developmental spending.

Regional Inclusion: This edition specifically includes North-Eastern and Himalayan States, recognizing their unique structural challenges, such as a high reliance on central transfers and higher costs of service delivery due to terrain.

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