NITI Aayog launches the “Fiscal Health Index 2025” – An Overview
The first issue of NITI Aayog’s report titled “Fiscal Health Index (FHI) 2025” was launched on January 24, 2025. The report provides a thorough evaluation of the fiscal health of 18 major states. The assessment is based on five key sub-indices. The report also includes insights into state-specific challenges and areas for improvement.
The FHI aims to clarify the fiscal status at the sub-national level and guide policy reforms to achieve sustainable and robust economic growth. The report ranks States following the comprehensive fiscal index (based on five major sub-indices).
The Five major sub-indices are aggregated to form the Fiscal Health Index. The sub-indices are
- Quality of Expenditure
- Revenue Mobilisation
- Fiscal Prudence
- Debt Index
- Debt Sustainability.
The Minor sub-indices can be seen in the Table (image) below:
Source: Fiscal Health Index, 2025
The report contains six chapters (excluding the Appendix) namely
- Introduction; Studies on State Finances:
- A Brief Review; Defining Variables and Data Interpretation
- Defining Variables and Data Interpretation
- Methodology
- Results
- State-wise Analysis
Fiscal Health Index (FHI), 2025
NITI Aayog’s Fiscal Health Index (FHI) initiative aimed to develop an understanding of Indian states’ fiscal health. The FHI analysis looks at eighteen major states that drive the Indian economy, including their GDP contribution, demography, total public expenditure, revenues, and overall fiscal stability. States are responsible for roughly two-thirds of public spending and one-third of total revenue, so their fiscal performance is critical to the country’s overall economic stability.
The FHI provides a systematic approach to assessing a state’s fiscal health, identifying areas for improvement, and sharing best practices among states. The report uses a composite index to objectively evaluate each state’s fiscal health, making it easier to compare and benchmark against best practices. The composite FHI has been developed using data from the Comptroller and Auditor General (CAG), focusing on five sub-indices: Quality of Expenditure, Revenue Mobilization, Fiscal Prudence, Debt Index, and Debt Sustainability.
A comprehensive state-by-state analysis is also provided, based on the five key sub-indices, to highlight state-specific fiscal health issues. This analysis is supported by graphs that depict trends in major fiscal indicators from 2014-15 to 2022-23.
This in-depth examination highlights individual state performance while also providing valuable insights into broader fiscal trends, allowing for a more complete understanding of the country’s financial health. The findings clearly show that strong revenue mobilisation, effective expenditure management, and prudent fiscal practises are critical success factors.
Top High-Performing And Low-Aspirational States
According to the report, Odisha ranked first among the 18 largest states in terms of fiscal health with an overall score of 67.8, followed by Chhattisgarh and Goa, who scored 55.2 and 53.6 respectively.
The achiever States have demonstrated strong fiscal health with good performance in revenue mobilization, expenditure management and debt sustainability.
The top five high-performing states are Odisha, Chhattisgarh, Goa, Jharkhand, and Gujarat, while the bottom (the report calls these aspirational) five are Haryana, Kerala, West Bengal, Andhra Pradesh, and Punjab. However, state performance varies across the five subcategories.
For instance, Uttar Pradesh and Bihar have a good score under Quality of Expenditure, but they rank lower in Revenue Mobilization. Karnataka performs well across most indices but it ranks amongst the three aspirational states in Debt Sustainability. Odisha and Chhattisgarh have performed well under Revenue Mobilization, with their Own Non-Tax Revenue growing significantly due to high revenue collection from mining.
For example, Uttar Pradesh and Bihar have high Quality of Expenditure scores but low Revenue Mobilization scores. Karnataka performs well on most indices, but it is one of the three aspirational states in debt sustainability. Odisha and Chhattisgarh have done well in terms of revenue mobilisation, with their Own Non-Tax Revenue increasing significantly as a result of high revenue collection from mining.
However, in terms of debt sustainability, Chattisgarh ranks lower than some other states.
Jharkhand’s situation has improved because of increased fiscal prudence and debt sustainability, whereas Karnataka’s economy is slowing due to poor expenditure quality and debt management. These interstate disparities highlight the need for targeted reforms to address specific fiscal challenges while ensuring long-term growth.
Progress and Challenges
The fiscal landscape across states reveals a picture of both progress and challenges. As states navigate their distinct fiscal challenges, the path forward is dependent on a commitment to transparency, increased tax compliance, and targeted investments in social and economic infrastructure.
States that foster a culture of fiscal prudence and accountability can stabilise their economies and improve the quality of life for their citizens, ensuring a resilient and prosperous future. High persistent deficits and varying fiscal performance across the States highlight the need for reform and targeted interventions. The path to fiscal sustainability is complex, but with concerted effort, it can result in transformative outcomes that benefit everyone.
Source: Fiscal Health Index, 2025
My Perception/Conclusion
The First Fiscal Health Index shows a more promising outlook for states. The report will help the states to know their weakness and strength when comes to Fiscal health. In simple, diagnosis are done, and medication is prescribed – now it is time to see whether the health improves or deteriorates. There is no doubt that the path to fiscal sustainability is never easy but with deliberate and concrete effort – it can result in transformative outcomes for all.
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