Background
Indian States are responsible for delivering essential public services such as health, education, agriculture, infrastructure, and welfare schemes.
States account for nearly two-thirds of India's public expenditure and around one-third of the general government debt.
Sound fiscal management is crucial for achieving sustainable economic growth, maintaining debt sustainability, and ensuring efficient public service delivery.
To promote fiscal discipline and evidence-based policymaking, NITI Aayog introduced the Fiscal Health Index (FHI) in 2025.
Features of Fiscal Health Index (FHI)
Annual index published by NITI Aayog.
Evaluates fiscal performance through a transparent, objective, and data-driven framework.
Covers 28 States (18 major States + 10 North-Eastern and Himalayan States).
Measures fiscal health using four broad parameters:
Quality of Expenditure
Revenue Mobilisation
Fiscal Prudence
Debt Management
Promotes:
Fiscal discipline
Financial sustainability
Better public financial management
Competitive and cooperative federalism
Significance
Helps States identify strengths and weaknesses in their fiscal management.
Encourages healthy competition among States to improve financial performance.
Supports evidence-based policy reforms and better budget planning.
Promotes efficient allocation of public resources.
Enhances transparency, accountability, and fiscal sustainability.
Assists governments in maintaining debt within prudent limits.
Challenges
Low own tax revenue in several States.
High committed expenditure on salaries, pensions, and interest payments.
Rising debt burden affecting fiscal sustainability.
Limited fiscal space for capital and developmental expenditure.
Significant regional disparities in fiscal performance.
Dependence on central transfers in many States.
Way Forward
Enhance your capacity to mobilise resources by increasing tax revenues through tax reforms and enhanced compliance.
Rationalise expenditures and improve efficiency in the use of expenditures.
Increase your capital expenditure for sustainable economic development.
Improve public financial management systems, including digital budgeting and outcome-based expenditure.
Maintain sustainability in borrowing through prudent expenditure.
States should adopt good fiscal practices through cooperative and competitive federalism.
Conclusion
The Fiscal Health Index 2026 is a well-rounded and objective measure of fiscal performance of Indian states. Through its efforts towards fiscal discipline, sustainable debt management, and prudent use of resources, it can serve as an important means of improving the financial performance of states in India.
