NITI Aayog has launched the “Fiscal Health Index (FHI) 2025”, an annual report aimed at assessing and improving the fiscal health of Indian states. The inaugural issue of the report was unveiled by the Hon’ble Chairman of the 16th Finance Commission, Dr. Arvind Panagariya, on 24th January 2025 in New Delhi.The launch event saw the participation of several esteemed dignitaries, including Shri Suman Bery (Vice Chairman, NITI Aayog), Dr. Arvind Virmani (Member, NITI Aayog), Shri BVR Subrahmanyam (CEO, NITI Aayog), Dr. Anoop Singh (Distinguished Fellow, NITI Aayog), and other senior officials.

Objective of the Fiscal Health Index

The Fiscal Health Index (FHI) aims to provide a comprehensive evaluation of the fiscal health of Indian states, helping guide policy reforms and improve fiscal governance. The FHI focuses on:

• Monitoring sub-national fiscal health.

• Promoting fiscal sustainability and economic resilience.

• Offering actionable insights for state-level fiscal policy improvements.

• Encouraging cooperative federalism and shared governance responsibility.

Key Components of the Fiscal Health Index (FHI)

The FHI 2025 assesses 18 major states based on five sub-indices:

1. Quality of Expenditure: Focuses on efficient allocation and utilization of resources.

2. Revenue Mobilization: Evaluates the effectiveness of tax and non-tax revenue generation.

3. Fiscal Prudence: Measures the fiscal deficit and financial discipline.

4. Debt Index: Assesses the overall debt levels and their management.

5. Debt Sustainability: Reviews the ability of states to manage and repay debts.

Key Highlights of the FHI 2025

• Odisha secured the top position with a cumulative score of 67.8, followed by Chhattisgarh (55.2) and Goa (53.6).

• Achiever States: Odisha, Chhattisgarh, and Goa excelled in revenue mobilization, expenditure management, and debt sustainability.

• Improvements: States like Jharkhand have shown notable progress in fiscal prudence and debt management.

• Challenges: Karnataka, however, experienced a decline due to weaker performance in expenditure quality and debt management.

• Interstate Disparities: These underscore the need for tailored reforms to address fiscal challenges and promote sustainable growth.

Significance of the Fiscal Health Index

1. Policy Guidance:

• Offers data-driven insights to policymakers at both state and central levels for strategic fiscal planning.

• Helps identify areas requiring targeted interventions.

2. Promoting Fiscal Discipline:

• Encourages states to align their fiscal strategies with national objectives.

• Fosters healthy competition among states to achieve fiscal sustainability.

3. Improving Governance:

• Strengthens cooperative federalism by emphasizing shared fiscal responsibilities.

• Facilitates a more integrated approach to fiscal health and sustainable growth.

4. Annual Review for Progress:

• The FHI will be published annually, ensuring continuous monitoring and improvement of fiscal health across states.

The launch of the Fiscal Health Index 2025 marks a significant step toward fostering fiscal responsibility and economic resilience at the state level. By providing comprehensive assessments and actionable insights, the FHI aligns with India’s broader vision of achieving fiscal stability and inclusive growth by 2047.As states work to address fiscal disparities and strengthen governance frameworks, the FHI will serve as a vital tool in shaping India’s journey toward economic prosperity and sustainable development.