Key Facts and Data Points

  • FHI 2026 released by NITI Aayog, covering 18 major states + 10 North‑Eastern & Himalayan states.
  • Five pillars: Quality of Expenditure, Revenue Mobilisation, Fiscal Prudence, Debt Index, Debt Sustainability.
  • Data verification: Comptroller and Auditor General (CAG).
  • Top performers (major states): Odisha, Goa, Jharkhand.
  • Front‑Runners: Gujarat, Maharashtra, Chhattisgarh, Telangana, Uttar Pradesh, Karnataka.
  • Aspirational (bottom): West Bengal, Kerala, Andhra Pradesh, Punjab – debt 35‑45% of GSDP, interest burden 15‑20% of revenue.
  • NE/Himalayan achievers: Arunachal Pradesh, Uttarakhand.
  • Debt‑to‑GSDP ratio (states) rose from 16.7% (2013‑14) to ~23% (2022‑23).
  • Combined fiscal deficit of states: ~3.2% of GDP in FY‑25.
  • Recommended fiscal deficit target for states: ≤3% of GSDP (FRBM).
  • 16th Finance Commission (2026‑31): advises central deficit ≤3.5% of GDP by 2030‑31.

Background and Context

  • Global public debt hit USD 102 trillion (2024), increasing pressure on fiscal sustainability worldwide.
  • States account for ≈ one‑third of India’s total government debt, making their fiscal health pivotal for national stability.
  • The first edition of FHI covered only 18 general‑category states; the 2026 edition expands to include NE and Himalayan states, recognising their unique fiscal challenges.

Significance for India / Governance / Policy

  • Macroeconomic stability: Healthy state finances curb inflationary pressures, prevent crowding‑out of private investment and reduce the need for central bail‑outs.
  • Developmental spending: Strong fiscal positions enable higher capital outlays (≈4‑5% of GSDP) for health, education, infrastructure, reducing regional disparities.
  • Fiscal federalism: The index provides a data‑driven framework for the Centre and states to negotiate transfers, design reforms and enforce fiscal discipline.
  • Policy recommendations:
  • Broaden GST base, improve tax compliance, strengthen own‑tax (property, excise, stamp duties).
  • Rationalise committed expenditures (pensions, salaries) and subsidies.
  • Enhance capital spending quality and adopt medium‑term fiscal planning.
  • Strengthen transparency: tighter control on off‑budget borrowings, use CAG‑verified data.

Related Constitutional / Legal Provisions

  • Article 280 – Constitution mandates a Finance Commission to recommend fiscal relations between Centre and states.
  • Fiscal Responsibility and Budget Management (FRBM) Act – sets deficit and debt targets for both Union and states.
  • Finance Commission (16th) – specific recommendations for deficit limits and subsidy rationalisation for 2026‑31.

How to Use the Index

  • Benchmarking: States can compare performance with peers and adopt best practices.
  • Policy formulation: Guides state‑specific reforms in revenue mobilisation and expenditure management.
  • Academic & exam relevance: Provides concrete data for UPSC questions on fiscal federalism, debt sustainability and public finance.

Drishti Mains Question: “Fiscal health of states is central to India’s macroeconomic stability.” Examine in the context of the Fiscal Health Index 2026.