Fiscal Health Index (FHI) 2025 – UPSC Prelims Pointer

Fiscal Health Index (FHI) 2025

Introduction:
NITI Aayog has released the inaugural edition of the Fiscal Health Index (FHI) 2025, which was launched by Dr. Arvind Panagariya, Chairman of the 16th Finance Commission. This report aims to assess the financial health of Indian states and provide policy recommendations for improvement.

The index evaluates states’ fiscal performance, helping policymakers enhance their financial management strategies for sustainable economic growth.

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1. Key Objectives of the Report

✅ Assess the fiscal stability of states
✅ Examine the quality of expenditure and fiscal prudence
✅ Provide recommendations for sustainable economic growth
✅ Highlight debt management challenges and solutions

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2. Key Components of Evaluation

The financial health of states has been assessed based on five major parameters:

(A) Quality of Expenditure

• How efficiently are funds being utilized?
• Is the expenditure productive and growth-oriented?

(B) Revenue Mobilization

• How effectively is the state generating revenue?
• What is the status of tax and non-tax revenues?

(C) Fiscal Prudence

• Is the state managing its financial resources wisely?
• How is the fiscal deficit being controlled?

(D) Debt Index

• What is the overall debt burden of the state?
• How does it compare with the state’s GDP?

(E) Debt Sustainability

• Can the state manage and repay its debts effectively?
• What is the long-term financial stability outlook?

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3. Performance of States

Category	Top-performing States	Low-performing States
Best Performers	Odisha, Chhattisgarh, Goa, Jharkhand	Punjab, Kerala, Andhra Pradesh, West Bengal

(A) Top-performing States

✅ Odisha – Secured the highest score of 67.8
✅ Chhattisgarh – Strong in revenue generation and debt management
✅ Goa – Excellent in economic stability and fiscal prudence

(B) Low-performing States

❌ Punjab – High fiscal deficit and debt burden
❌ Kerala – Poor quality of expenditure
❌ Andhra Pradesh – Challenges in revenue collection
❌ West Bengal – Weak financial management

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4. Key Points for UPSC Exam

1️⃣ What is NITI Aayog’s “Fiscal Health Index (FHI) 2025” related to?
→ The assessment of states’ financial health.

2️⃣ What are the five key components of the report?
→ Quality of Expenditure, Revenue Mobilization, Fiscal Prudence, Debt Index, and Debt Sustainability.

3️⃣ Which states are top performers?
→ Odisha, Chhattisgarh, Goa.

4️⃣ Which states are low performers?
→ Punjab, Kerala, Andhra Pradesh, West Bengal.

5️⃣ What is the significance of this report?
→ It helps policymakers improve economic stability and financial governance.

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5. Conclusion

The Fiscal Health Index 2025 provides a comprehensive assessment of states’ fiscal conditions. It serves as a policy guide for improving financial discipline and economic resilience at the state level.

Future Implications of This Report:

🔹 Encourages better economic policies at the state level
🔹 Promotes fiscal discipline and sustainability
🔹 Strengthens India’s overall financial health

This topic is highly relevant for the UPSC exam, especially for GS Paper-3 (Economy) and Interview discussions related to fiscal policies and governance.