Odisha and Chhattisgarh have emerged as India’s fiscally healthiest states, while Andhra Pradesh, Punjab, West Bengal, and Kerala rank among the laggards in NITI Aayog’s first Fiscal Health Index (FHI) report. The report, based on data from the Comptroller and Auditor General (CAG), evaluates fiscal performance across 18 states, which collectively contribute 85% of India’s gross domestic product (GDP).
Odisha Tops Fiscal Health Rankings
Odisha secured the highest overall score of 67.8 on the index, excelling in Debt Index (99.0) and Debt Sustainability (64.0). The state has maintained low fiscal deficits, an above-average capital outlay-to-GSDP ratio, and robust debt management. According to the report, Odisha’s strong performance is also supported by better-than-average scores in Quality of Expenditure and Revenue Mobilization.
The quality of expenditure was assessed by measuring developmental expenditure as a share of total spending and capital outlay as a share of gross state domestic product.
Contrasting Performances Among States
The report highlighted varying performances among states based on five sub-indices: quality of expenditure, revenue mobilisation, fiscal prudence, debt index, and debt sustainability.
- Chhattisgarh performed well in Revenue Mobilization, driven by high mining-related revenues, but ranked lower in Debt Sustainability.
- Karnataka excelled across most indices but was classified among “aspirational states” in Debt Sustainability.
- Uttar Pradesh and Bihar scored well on Quality of Expenditure but lagged in Revenue Mobilization.
In contrast, Punjab and West Bengal face growing debt burdens and unsustainable debt-to-GDP ratios. West Bengal’s interest payments accounted for 20.47% of its revenue receipts in 2022-23, limiting funds available for development.
Recommendations for Lagging States
The NITI Aayog suggested fiscal discipline and enhanced revenue mobilisation to address challenges in states like Punjab and West Bengal. For Kerala, the report advised implementing effective tax and non-tax strategies, optimizing resource efficiency, and increasing capital expenditure in the social services sector to improve fiscal health.
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National Implications
Releasing the report in New Delhi, Arvind Panagariya, chairperson of the 16th Finance Commission and NITI Aayog’s first vice-chairman, emphasized the importance of fiscal health in driving development. He noted that Gujarat’s quality of expenditure was commendable, scoring 40 out of 100 on the index’s expenditure quality metric.
The findings of this report offer critical insights as the Finance Commission prepares recommendations that will take effect from April 2026. With fiscal challenges mounting in several states, the report underscores the need for targeted strategies to promote sustainable fiscal practices across the country.
