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Fiscal Health Index (FHI) 2026

Published: April 18, 2026
Indian Economy

Recently, the NITI Aayog released the second edition of the Fiscal Health Index (FHI) 2026 to evaluate the fiscal performance of Indian states.

The report is particularly significant in the present context as global public debt has surged to nearly USD 102 trillion in 2024, placing increasing pressure on public finances worldwide. This makes fiscal discipline and sustainability at the state level more important than ever.

What is the Fiscal Health Index (FHI)?

The Fiscal Health Index is a comprehensive and data-driven framework developed by NITI Aayog to assess, compare, and improve the fiscal health of Indian states.

It evaluates states based on five key pillars:

  • Quality of Expenditure

  • Revenue Mobilisation

  • Fiscal Prudence

  • Debt Index

  • Debt Sustainability

The index uses data verified by the Comptroller and Auditor General of India, ensuring credibility, transparency, and reliability. Its primary objective is to promote reforms, enable evidence-based policymaking, and encourage healthy competition among states.

Key Features of FHI 2026

The FHI 2026 provides a long-term analysis of fiscal trends by examining data from FY 2014–15 to FY 2023–24.

An important feature of this edition is the expanded coverage, which now includes North-Eastern and Himalayan states in addition to the earlier 18 major states. These states are ranked separately to account for their unique challenges such as:

  • Geographical remoteness

  • Low population density

  • Limited revenue-generating capacity

  • Higher dependence on central transfers

Key Highlights of the Report

Performance of Major States

The index categorises states into four groups:

  • Achievers: Odisha, Goa, and Jharkhand are the top performers, characterised by low fiscal deficits, stable revenues, and moderate debt levels.

  • Front-Runners: States like Gujarat and Maharashtra perform well due to low debt levels and controlled interest burdens.

  • Performers: States such as Madhya Pradesh and Bihar show moderate performance, with Bihar improving its fiscal management.

  • Aspirational States: Punjab, Kerala, West Bengal, and Andhra Pradesh face serious challenges, including:

    • High debt (35–45% of GSDP)

    • High committed expenditure (50–60%)

    • Significant interest burden

    • Frequent breaches of **Fiscal Responsibility and Budget Management Act norms

North-Eastern and Himalayan States

  • Achievers: Arunachal Pradesh and Uttarakhand perform well due to better fiscal management and revenue mobilisation.

  • Performers: States like Assam and Tripura show mixed outcomes.

  • Aspirational States: Himachal Pradesh, Manipur, and Nagaland face high debt, weak revenue bases, and persistent deficits.

Significance of Fiscal Health of States

1. Macroeconomic Stability

The fiscal condition of states is critical because they account for about one-third of India’s total public debt. Weak state finances can lead to:

  • Inflationary pressures

  • Reduced private investment

  • Increased burden on the central government

2. Role in Development

State governments are responsible for major expenditures on:

  • Health and education

  • Infrastructure and welfare schemes

Strong fiscal health enables higher capital investment and balanced regional development.

3. Rising Fiscal Stress

There has been a noticeable rise in fiscal pressure:

  • State debt increased from ~16.7% (2013–14) to ~23% (2022–23)

  • Fiscal deficit rose to around 3.2% of GDP

This trend highlights the need for better fiscal management and sustainability measures.

Policy Measures Recommended

The report suggests several reforms to strengthen state finances:

  • Enhancing Revenue: Improve tax compliance, expand GST base, and strengthen state-level taxes.

  • Controlling Expenditure: Reduce excessive spending on salaries, pensions, and subsidies.

  • Improving Capital Expenditure: Focus on productive investments that boost long-term growth.

  • Maintaining Fiscal Discipline: Adhere to FRBM targets, especially keeping the fiscal deficit around 3% of GSDP.

  • Increasing Transparency: Limit off-budget borrowings and improve financial reporting systems.

Conclusion

The Fiscal Health Index 2026 highlights that strong and sustainable state finances are essential for India’s overall economic stability and development. By identifying fiscal weaknesses and promoting reforms, the index serves as a valuable tool for improving governance, accountability, and long-term growth, contributing to the vision of Viksit Bharat @2047.


 

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