Fiscal Health Index 2026

The NITI Aayog released the Fiscal Health Index 2026, which assesses the fiscal performance of Indian states. Read here to learn more.

The NITI Aayog released the second annual edition of the Fiscal Health Index 2026 (FHI), which evaluates the fiscal performance of Indian states for the financial year 2023-24.

The index provides a structured framework to assess the fiscal stability, sustainability, and management practices of states, going beyond traditional deficit indicators.

State finances play a crucial role in India’s macroeconomic stability, as state governments collectively account for approximately one-third of the country’s general government debt.

What is the Fiscal Health Index?

The Fiscal Health Index (FHI) is a composite index developed by NITI Aayog to evaluate and compare the fiscal soundness of Indian states.

Objectives:

• Assess the fiscal management of states
• Identify fiscal strengths and vulnerabilities
• Encourage better fiscal discipline and transparency
• Promote data-driven policymaking

The index provides comparative rankings of states based on multiple fiscal indicators.

Key Pillars of the Fiscal Health Index

The index is built on five core pillars that measure different aspects of fiscal performance.

1. Quality of Expenditure

This pillar evaluates how effectively states allocate their spending.

It focuses on:

• Capital expenditure
• Developmental spending
• Reduction in committed expenditure, such as salaries and pensions

Higher capital expenditure generally indicates better long-term economic impact.

2. Revenue Mobilisation

This pillar measures a state’s ability to generate internal revenue resources.

Indicators include:

• State GST collections
• Non-tax revenue
• Own tax revenue as a proportion of total receipts

Strong revenue mobilisation reduces dependence on central transfers.

3. Fiscal Prudence

This assesses whether states maintain responsible fiscal discipline.

It examines:

• Fiscal deficit levels
• Compliance with fiscal targets under the Fiscal Responsibility and Budget Management Act (FRBM framework)

4. Debt Index

The debt index measures the size of outstanding liabilities relative to the state’s economic capacity.

Higher debt burdens can limit future fiscal flexibility.

5. Debt Sustainability

This pillar assesses whether states can sustain their debt obligations over the long term without incurring fiscal stress.

Indicators include:

• Interest payment burden
• Debt-to-GSDP ratios

Fiscal Health Index 2026: State Rankings (FY 2023-24)

Top Performing States:

Rank	State	Score
1	Odisha	73.1
2	Goa	54.7
3	Jharkhand	50.5
4	Gujarat	49.9
5	Maharashtra	45

Odisha retained the top position due to strong revenue performance and controlled deficits.

Bottom-Performing States:

Rank	State
18	Punjab
17	Andhra Pradesh
16	West Bengal
15	Kerala

These states face significant fiscal stress due to rising debt levels and limited revenue growth.

Major Findings of Fiscal Health Index 2026 report

1. Expanding Coverage

• The 2026 edition expanded its coverage to include 10 North-Eastern and Himalayan states, acknowledging their unique fiscal challenges.
• Among them, Arunachal Pradesh emerged as the best performer due to high-quality expenditure patterns.

2. Continued Leadership of Odisha

Odisha maintained its leadership position because of:

• Stable revenue streams
• Controlled fiscal deficit
• Sustainable debt management

3. Persistent Fiscal Stress in Some States

States such as Punjab, Kerala, and West Bengal continue to face:

• Rising debt levels
• High fiscal deficits
• Slow revenue growth

4. Shift Towards Capital Expenditure

Many states have increased capital expenditure and social sector spending, which supports long-term growth.

Capital spending on:

• Infrastructure
• Health
• Education

can generate higher economic returns over time.

5. Importance for the National Economy

State finances significantly influence India’s macroeconomic stability because:

• States implement most developmental programs
• They manage major sectors such as health, education, agriculture, and infrastructure

Healthy state finances are therefore crucial for achieving national development goals.

Key Fiscal Challenges Faced by States

1. High Committed Expenditure

• A significant portion of state budgets is allocated to salaries, pensions, and interest payments, leaving limited funds for development.
• Example: In Punjab, committed expenditure reached around 80% of revenue receipts in 2023-24.

2. Weak Own-Revenue Mobilisation

• Several states rely heavily on central transfers rather than generating internal revenue.
• Example: In Bihar, own revenue contributes less than one-third of total receipts.

3. Breach of Fiscal Deficit Limits

• Some states have exceeded fiscal deficit limits prescribed under the FRBM framework.
• Example: Andhra Pradesh recorded a fiscal deficit of 4.35% of GSDP in 2023-24, exceeding the 4% ceiling.

4. Rising Interest Burden

• Higher debt levels increase interest payments.
• Example: West Bengal spends over 20% of its revenue receipts on servicing debt.

5. Structural Geographic Constraints

• States with difficult terrain face higher costs for infrastructure and service delivery.
• Example: Himachal Pradesh faces fiscal stress due to mountainous terrain, high infrastructure costs, and rising pension liabilities

Way Forward

Broaden the Tax Base: States should enhance their own tax revenue generation, especially by expanding GST compliance and improving tax administration.

Rationalise Expenditure: States need to reduce excessive committed expenditure and reform subsidy-heavy sectors such as power distribution.

Improve Quality of Capital Spending: Investments should prioritise projects that generate long-term economic benefits, such as infrastructure and human capital development.

Medium-Term Fiscal Planning: States should adopt multi-year fiscal frameworks to stabilise debt levels and maintain deficit discipline.

Improve Transparency: Better fiscal governance can be achieved through:

• Use of CAG-verified data
• Peer benchmarking through indices like the Fiscal Health Index

Conclusion

The Fiscal Health Index 2026 highlights the growing importance of sound fiscal management at the state level. While states like Odisha and Gujarat demonstrate strong fiscal discipline, several others continue to face structural fiscal pressures.

Improving revenue mobilisation, controlling debt, and prioritising productive expenditure will be essential for strengthening state finances and achieving the national development vision of Viksit Bharat 2047.

Related articles:

• Fiscal Federalism in India
• States borrowing power
• Centre-State relations
• Public debt of states