Fiscal Health Index 2025: Measuring State-Level Financial Sustainability
- vidyarthee2021
- 23 hours ago
- 2 min read
The Fiscal Health Index (FHI) 2025 has been developed by NITI Aayog to provide a comparative framework for assessing the fiscal management practices of Indian states. Using standardized metrics and audited data from the Comptroller and Auditor General (CAG) for FY 2022–23, the index focuses on the financial robustness of states, ensuring that their fiscal strategies align with long-term sustainability goals.
Objective and Coverage
Purpose:To evaluate and compare the fiscal health of Indian states in a comprehensive and data-driven manner.
Scope:Covers 18 major Indian states that play a key role in the national economy in terms of:
Contribution to India’s GDP
Population demographics
Share in total public expenditure and revenue
Overall fiscal stability
Key Components of the Index
The FHI is composed of five major sub-indices that assess various dimensions of fiscal performance:
Quality of Expenditure
Measures allocation towards capital vs. revenue spending
Focus on developmental and social sectors
Revenue Mobilization
Tracks both tax and non-tax revenue performance
Evaluates the efficiency of revenue collection mechanisms
Fiscal Prudence
Assesses adherence to fiscal deficit targets
Compliance with Fiscal Responsibility legislation
Debt Index
Evaluates debt accumulation trends relative to GSDP
Measures repayment burden and credit discipline
Debt Sustainability
Analyses the ability of states to service debt
Measures ratio of interest payments to revenue receipts
Top Performers
Odisha ranks first in the overall Fiscal Health Index 2025, showcasing sound fiscal planning and discipline.
Followed by Chhattisgarh, Goa, Jharkhand, and Gujarat—states that have maintained a balance between expenditure quality and debt management.
Relevance to UPSC CSE
Highlights NITI Aayog’s role in cooperative federalism and data-based policy evaluation.
Connects with FRBM Act, fiscal federalism, and public finance reforms in India.
Useful while addressing issues under GS Paper 2 (Governance, Fiscal Federalism) and GS Paper 3 (Economy – Budgeting and Public Finance).
UPSC Prelims Question
Consider the following statements with respect to the Fiscal Health Index (FHI) 2025:
It is an initiative of the Reserve Bank of India to assess the fiscal management of Union Territories.
The Index includes parameters such as debt sustainability and revenue mobilization.
Odisha topped the Index in the current assessment.
Which of the statements given above is/are correct?
(a) 2 only
(b) 2 and 3 only
(c) 1 and 2 only
(d) 1, 2 and 3
Answer: (b) 2 and 3 only
Explanation:
Statement 1 is incorrect – The FHI is developed by NITI Aayog, not the RBI.
Statement 2 is correct – Debt sustainability and revenue mobilization are two of the major sub-indices.
Statement 3 is correct – Odisha is the top-performing state in FHI 2025.
UPSC Mains Question
Q. Discuss the significance of the Fiscal Health Index (FHI) 2025 in promoting fiscal responsibility and cooperative federalism among Indian states. What are the key challenges in ensuring uniform fiscal discipline across states?
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