Performance Ranking of States for 2025
The report by Care Edge Ratings, a subsidiary of Care Ratings, on the performance ranking of states for 2025, has garnered significant media attention. Though produced by a private rating agency, it gained an official touch with a foreword by the CEO of NITI Aayog.
Key Pillars and Methodology
The report evaluates states across seven pillars:
- Economic
- Fiscal
- Financial
- Infrastructural
- Social
- Governance
- Environment
Using 50 indicators, the report creates a composite index by normalizing data and assigning weights based on their perceived importance. The states are divided into two groups for analysis: Group A (large states) and Group B (northeastern, hilly, and small states).
Performance Rankings
- Group A: Maharashtra, Gujarat, and Karnataka lead, while Madhya Pradesh, Jharkhand, and Bihar rank lowest.
- Group B: Goa, Sikkim, and Himachal Pradesh top the list, whereas Arunachal Pradesh, Manipur, and Nagaland are ranked at the bottom.
Subjectivity and Weight Assignments
The subjectivity is evident in weight assignments:
- Economic and Fiscal: 25% and 20% weights respectively.
- Financial and Infrastructure: 15% each.
- Social and Governance: 10% each.
- Environment: 5% weight.
Issues with Indicators and Weight Assignments
The economic index shows anomalies; Telangana, despite high per capita income, ranks sixth, and Bihar, with low per capita GSDP, ranks higher than wealthier states. This is due to the inclusion of variables like industrial and service shares, FDI, and capital formation ratios. The mix of outcome and input variables raises questions about objectivity.
Formulation Challenges
Unlike NITI Aayog's Fiscal Health Index, which focuses on deficits and debt, this report also considers education and health spending. However, the weight on deficits and debt remains higher. Variables are based on expenditure shares, which can misrepresent per capita spending, especially in low-income states, due to limited tax bases and borrowing constraints.
Utility and Implications
This ranking, unlike credit ratings, does not affect borrowing costs or resource availability for states, as their bonds have sovereign guarantees. While it is intended to drive policy initiatives, real competition under federalism is hindered by a lack of incentives for state governments to improve performance.
