The Fiscal Health Index (FHI) report for 2025 was launched on 24th January 2025 in New Delhi. This inaugural publication by NITI Aayog focuses on the fiscal health of state of Indias. The report aims to provide valuable data-driven insights that can guide state-level policy interventions. It seeks to enhance fiscal governance and promote economic resilience across the nation.
Overview of the Fiscal Health Index
- The FHI ranks 18 major state of Indias based on their fiscal performance.
- It uses five key sub-indices to assess fiscal health. These sub-indices are Quality of Expenditure, Revenue Mobilisation, Fiscal Prudence, Debt Index, and Debt Sustainability.
- The report provides a composite score for each state, reflecting their overall fiscal status.
Top Performing States
- Odisha secured the top position with a cumulative score of 67.8.
- Chhattisgarh and Goa followed, scoring 55.2 and 53.6, respectively.
These states demonstrated strong fiscal health through effective revenue mobilization, prudent expenditure management, and sustainable debt practices.
Areas for Improvement
Some states, like Jharkhand, showed improvements in fiscal prudence and debt sustainability. Conversely, Karnataka faced challenges due to declining expenditure quality and poor debt management. These disparities highlight the necessity for targeted reforms to address specific fiscal challenges.
Importance of the FHI
The FHI serves as a comprehensive tool for measuring state-level fiscal performance. It helps policymakers understand broader fiscal trends and encourages states to adopt stable fiscal paths. The report promotes balanced regional development and long-term fiscal sustainability.
Role of Cooperative Federalism
The report puts stress on the significance of cooperative federalism in enhancing India’s governance framework. It advocates for collaboration between the Centre and states to address regional disparities. This cooperation is essential for driving holistic economic development.
Future Implications
The FHI is set to become an annual publication. It will provide ongoing vital information about the fiscal health of state of Indias. This initiative aims to encourage informed decision-making and strategic planning for sustainable economic growth.
Goals of the FHI
The FHI aligns with India’s vision of achieving Viksit Bharat@2047. It emphasizes the critical role of fiscal discipline at the state level. By focusing on key fiscal indicators, the FHI encourages states to contribute to a fiscally stable and prosperous India.
Questions for UPSC –
- Critically discuss the potential impact of the Fiscal Health Index on state-level governance in India.
- Examine the significance of fiscal prudence in achieving sustainable economic growth in developing countries.
- Analyse the relationship between revenue mobilization and economic resilience in federal systems.
- Estimate the role of cooperative federalism in addressing regional disparities in economic development.
Answer Hints:
1. Critically discuss the potential impact of the Fiscal Health Index on state-level governance in India.
- Provides a systematic assessment of fiscal performance, enabling targeted policy interventions.
- Encourages states to adopt stable fiscal paths, enhancing overall governance and accountability.
- Promotes healthy competition among states, leading to improved fiscal practices and transparency.
- Facilitates data-driven decision-making for policymakers, aligning state strategies with national objectives.
- Highlights areas for improvement, guiding states towards sustainable economic growth and resilience.
2. Examine the significance of fiscal prudence in achieving sustainable economic growth in developing countries.
- Fiscal prudence ensures responsible management of public finances, reducing the risk of debt crises.
- Encourages investment in essential services, encouraging human capital development and infrastructure growth.
- Enhances investor confidence, leading to increased foreign direct investment and economic stability.
- Facilitates effective resource allocation, ensuring that funds are directed towards priority sectors.
- Contributes to long-term economic sustainability by maintaining balanced budgets and fiscal discipline.
3. Analyse the relationship between revenue mobilization and economic resilience in federal systems.
- Effective revenue mobilization provides governments with the resources needed for public investment and services.
- Increased revenue enhances the ability to respond to economic shocks and crises, improving resilience.
- Strong revenue systems enable better fiscal planning and management, promoting sustainable growth.
- Encourages equitable distribution of resources, addressing regional disparities and encouraging inclusivity.
- Facilitates long-term economic development by funding infrastructure and social programs critical for growth.
4. Estimate the role of cooperative federalism in addressing regional disparities in economic development.
- Cooperative federalism encourages collaboration between central and state governments, ensuring balanced development.
- Encourages sharing of resources and best practices, helping underdeveloped regions catch up economically.
- Facilitates coordinated policy interventions tailored to specific regional needs and challenges.
- Promotes equitable distribution of funds, addressing imbalances in resource allocation across states.
- Strengthens governance frameworks, enhancing accountability and responsiveness to regional disparities.
