Fiscal Health Index (FHI) 2026

NITI Aayog released the second edition of the Fiscal Health Index (FHI) on 11 March 2026, evaluating the fiscal performance of Indian states for the financial year 2023–24.

The index provides a structured and data-driven framework to assess the fiscal sustainability of states, benchmark their financial management practices, and support evidence-based fiscal reforms.

The latest edition expands the scope of the index by incorporating North-Eastern and Himalayan states, which were not part of the first edition. This expansion reflects the need to analyse India’s fiscal landscape more comprehensively, considering the diverse economic structures and fiscal capacities across states.

Why State Finances Matter For India’s Economy

State finances have become increasingly important for India’s macroeconomic stability and long-term growth. In India’s federal fiscal architecture, states are responsible for a significant share of public expenditure and development spending.

Key aspects of state finances include:

• States account for nearly two-thirds of public expenditure in India, particularly in sectors such as health, education, agriculture, infrastructure and social welfare.
• They contribute around one-third of the total general government debt.
• State fiscal policies influence investment patterns, public service delivery, and infrastructure creation.

As India moves toward the vision of Viksit Bharat @2047, ensuring the fiscal sustainability of state governments becomes critical. Weak fiscal management at the state level can create macroeconomic risks such as rising debt burdens, unsustainable deficits, and reduced fiscal space for development expenditure.

Against this background, NITI Aayog developed the Fiscal Health Index as a tool to monitor fiscal discipline and identify areas requiring reform.

What Is The Fiscal Health Index?

The Fiscal Health Index (FHI) is a composite index that evaluates the fiscal strength of states across multiple dimensions of public finance management. It aims to provide a transparent and comparable measure of fiscal performance across states.

The index serves several policy objectives:

• benchmarking fiscal performance across states
• identifying fiscal vulnerabilities
• promoting prudent fiscal management
• encouraging best practices in public financial management
• enabling policymakers to design targeted fiscal reforms

Unlike traditional measures that rely solely on deficit indicators, the FHI incorporates a broader set of fiscal variables that capture both short-term fiscal discipline and long-term sustainability.

Key Pillars Of the Fiscal Health Index

The FHI evaluates state finances using five core pillars, each representing a critical dimension of fiscal management.

Quality of Expenditure

This pillar assesses how effectively states allocate their expenditure toward productive and developmental activities. Development-oriented spending in areas such as infrastructure, health, education and social welfare contributes to long-term economic growth.

Indicators used include:

• ratio of developmental expenditure to total expenditure
• capital outlay relative to Gross State Domestic Product (GSDP)

States with higher capital investment and developmental spending tend to achieve higher scores under this pillar.

Revenue Mobilisation

Revenue mobilisation reflects the capacity of a state to generate its own tax and non-tax revenues. A strong revenue base enhances fiscal autonomy and reduces dependence on central transfers.

Indicators include:

• state own revenue as a proportion of GSDP
• state own revenue as a share of total expenditure

States with diversified revenue sources and efficient tax administration tend to perform better in this dimension.

Fiscal Prudence

Fiscal prudence measures the discipline with which states manage their fiscal deficits and maintain compliance with fiscal responsibility frameworks.

Key indicators include:

• fiscal deficit relative to GSDP
• revenue deficit relative to GSDP

States that maintain deficits within the limits prescribed under the Fiscal Responsibility and Budget Management (FRBM) framework are considered fiscally prudent.

Debt Index

The debt index evaluates the size and sustainability of state debt. It measures the burden of outstanding liabilities and the cost of servicing that debt.

Indicators include:

• interest payments relative to revenue receipts
• outstanding liabilities relative to GSDP

A lower debt burden and manageable interest payments indicate healthier fiscal conditions.

Debt Sustainability

This pillar assesses whether a state’s economic growth is sufficient to sustain its debt obligations.

The key indicator used is:

• difference between the growth rate of GSDP and the growth rate of interest payments.

If economic growth outpaces interest payments, debt remains sustainable over the long term.

Expanded Coverage in the 2026 Edition

The second edition of the Fiscal Health Index expands the coverage beyond the 18 major states to include 10 North-Eastern and Himalayan states. These states are assessed separately because their fiscal structures differ significantly from those of larger states.

Key structural features of these regions include:

• limited tax bases
• smaller and dispersed populations
• difficult geographical terrain
• higher costs of delivering public services
• greater dependence on central transfers and grants

To account for these differences, additional indicators such as committed expenditure ratios and dependence on central transfers have been incorporated for these states.

This approach ensures that states are compared within appropriate peer groups rather than across structurally different fiscal environments.

Fiscal Health Rankings: Major States

The Fiscal Health Index for FY 2023-24 reveals significant variation in fiscal performance among Indian states.

Top Performing States

The leading states in fiscal performance are:

• Odisha
• Goa
• Jharkhand
• Gujarat
• Maharashtra

Odisha retained the top position with a score of 73.1, reflecting strong revenue mobilisation, prudent fiscal management and sustainable debt levels. Goa and Jharkhand also performed well due to their relatively strong revenue bases and balanced expenditure patterns.

These states demonstrate effective fiscal discipline, efficient public spending and relatively low debt burdens.

Middle-Ranked States

States such as Chhattisgarh, Telangana, Uttar Pradesh, Karnataka and Madhya Pradesh fall in the middle category. These states generally exhibit moderate fiscal performance with relatively stable revenue mobilisation and manageable debt levels.

However, many of them face challenges related to rising committed expenditure and limited fiscal flexibility.

States Facing Fiscal Stress

At the bottom of the rankings are:

• Punjab
• Andhra Pradesh
• West Bengal
• Kerala

These states face persistent fiscal stress characterised by high debt levels, large fiscal deficits, and limited revenue growth. In several cases, high expenditure on salaries, pensions and interest payments reduces the fiscal space available for development expenditure.

Fiscal Performance of NE and Himalayan States

For the first time, the index evaluates the fiscal performance of North-Eastern and Himalayan states separately.

Top Performers

• Arunachal Pradesh
• Uttarakhand
• Tripura

These states perform relatively well due to higher developmental expenditure and better debt management practices.

States with Fiscal Challenges

Some states face structural fiscal constraints, including:

• Himachal Pradesh
• Manipur
• Nagaland

These states experience limited revenue mobilisation and significant reliance on central transfers.

Emerging Fiscal Trends

The Fiscal Health Index highlights several broader trends in India’s fiscal landscape.

• Rising Debt Pressures: Several states continue to face rising debt levels, particularly those with persistent fiscal deficits. In weaker states, debt levels often exceed 35–45% of GSDP.
• High Committed Expenditure: Committed expenditure—including salaries, pensions and interest payments—accounts for around 50–60% of revenue receipts in many states, limiting their ability to invest in development.
• Importance of Revenue Mobilisation: States with stronger own-tax revenue bases tend to demonstrate greater fiscal stability. Improving tax compliance and broadening revenue sources remains a key priority.
• Divergence in Fiscal Performance: Over the past decade, a clear divergence has emerged between states that maintain fiscal discipline and those facing structural fiscal pressures.

States with stronger revenue bases and prudent expenditure management continue to strengthen their fiscal positions, while others struggle with debt sustainability.

Policy Recommendations

The report outlines several policy measures to strengthen fiscal sustainability across states.

Key recommendations include:

• strengthening revenue mobilisation through improved GST compliance
• rationalising subsidies and controlling committed expenditure
• enhancing the quality of capital expenditure
• improving transparency and fiscal reporting
• adopting medium-term fiscal frameworks

These measures can help states contain fiscal deficits, stabilise debt levels, and improve long-term fiscal resilience.

Conclusion

The Fiscal Health Index provides valuable insights into the fiscal performance of Indian states and highlights the growing importance of sound public financial management at the sub-national level.

As states play a crucial role in delivering development outcomes and public services, maintaining healthy fiscal balances is essential for sustaining economic growth and macroeconomic stability.

Strengthening fiscal discipline, improving revenue mobilisation, and enhancing expenditure efficiency will be central to building a resilient fiscal framework capable of supporting India’s long-term development goals and the vision of Viksit Bharat by 2047.

Read Full Report Here.