Why in the News?
Recently, NITI Aayog released Fiscal Health Index (FHI) Report 2025 to throw light on fiscal status at the sub-national level and guide policy reforms for sustainable and resilient economic growth.
More on the News
- FHI report will be an annual publication focusing on the fiscal health of Indian states.
- It will offer data-driven insights that will be leveraged for informed state-level policy interventions to improve overall fiscal governance, economic resilience, and stability of the nation.
Fiscal Health Index 2025
- About: Index ranks States on the basis of composite fiscal index, which is based on five major sub-indices and nine minor sub-indices (See the info graph).
- States have been classified on the basis of the FHI score:
- Achiever: Greater than 50
- Front Runner: Greater than 40 & less than equal to 50.
- Performer: Greater than 25 & less than equal to 40
- Aspirational: Less than equal to 25
- Report analyses 18 major states using CAG data, excluding special category and Himalayan states.
- Period of the analysis: Financial Year 2022-23.
- Competitive Governance Initiative: Government aims to boost state participation through fiscal incentives and performance indexes to achieve growth targets through improved governance.
Key Findings of FHI 2025
- Top Performing States: Odisha, Chhattisgarh and Goa.
- Non-tax revenue: Odisha, Jharkhand, Goa, and Chhattisgarh demonstrated strong non-tax revenue generation, accounting for 21% of their total revenue.
- Capital expenditure: Madhya Pradesh, Odisha, Goa, Karnataka, and UP demonstrated stronger capital investment by allocating 27% of their development funds to capital expenditure.
- Debt Sustainability: West Bengal and Punjab showed concerning fiscal trends with increasing debt-to-GSDP ratios, raising serious questions about their long-term debt sustainability.
Significance of the FHI Report
- Competitive federalism: FHI can promote healthy competition among states to align their fiscal strategies with national objectives, ensuring their contributions to the goal of a fiscally stable and prosperous India.
- Transparency and accountability: Index can promote transparency in fiscal practices by providing a public measure of how well states manage their finances.
- Informed policy making: By evaluating fiscal health through quantifiable metrics, the FHI can help policymakers identify where states need to focus reforms or allocate resources for better fiscal outcomes.
Conclusion
By fostering an environment of transparency, accountability, and cooperative federalism, the FHI encourages states to adopt best practices in fiscal management, thereby paving the way for sustainable economic growth. It can provide a roadmap for states to navigate towards fiscal prudence and stability, ultimately contributing to India's broader vision of achieving Viksit Bharat @2047.
