Why in news?
In March 2026 NITI Aayog released the second edition of its Fiscal Health Index (FHI), assessing how well Indian states manage their finances. The index helps identify strengths and weaknesses in expenditure, revenue and debt management.
Background
The Fiscal Health Index is a composite measure designed to encourage responsible fiscal behaviour by states. It evaluates each state across five pillars:
- Quality of expenditure: Share of capital spending in total expenditure and the proportion of social sector spending.
- Revenue mobilisation: Growth and composition of own‑source taxes and non‑tax revenues.
- Fiscal prudence: Budgetary balance, adherence to deficit targets and compliance with fiscal responsibility laws.
- Debt sustainability: Debt‑to‑GSDP ratio and the cost of servicing debt relative to revenue.
- Fiscal buffers: Adequacy of reserves and guarantees to absorb shocks.
Highlights of the 2026 edition
- State rankings: Among large states, Odisha, Goa and Jharkhand were categorised as “Achievers” with healthy own‑tax ratios, low deficits and sustainable debt levels. States like Gujarat, Maharashtra, Chhattisgarh, Telangana, Uttar Pradesh and Karnataka were “Front‑Runners.” Madhya Pradesh, Haryana, Bihar, Tamil Nadu and Rajasthan were classified as “Performers,” while West Bengal, Kerala, Andhra Pradesh and Punjab fell into the “Aspirational” category due to high deficits and debt.
- North‑Eastern and Himalayan states: Arunachal Pradesh and Uttarakhand emerged as “Achievers.” Assam, Meghalaya, Mizoram, Sikkim and Tripura were “Performers,” whereas Himachal Pradesh, Manipur and Nagaland were “Aspirational.”
- Policy recommendations: NITI Aayog urged states to broaden their tax base (especially by fully implementing the Goods and Services Tax), rationalise committed expenditures like salaries and pensions, prioritise capital investments in infrastructure and health, and adopt medium‑term fiscal frameworks to improve planning.
- Inclusion of new states: The 2026 index, for the first time, covered all 28 states including ten North‑Eastern and Himalayan states to provide a comprehensive picture of fiscal health.
Why does fiscal health matter?
Sound state finances underpin macroeconomic stability. States shoulder responsibilities for health, education and infrastructure, so persistent deficits and rising debt can crowd out development spending. Regular assessments like the FHI encourage transparency and benchmarking, helping states learn from peers and adopt better fiscal practices.
Sources: PIB.
