UPSC 2026 Practice Set on Fiscal Health Index 

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Q1

With reference to the Fiscal Health Index, consider the following statements:

1. It evaluates fiscal performance of Indian states.

2. The index uses indicators such as revenue mobilisation and debt sustainability.

3. It is released annually by the Reserve Bank of India.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 only

(d) 1, 2 and 3

Answer: (a)

Explanation

• Statement 1 ✔️ Correct
  The Fiscal Health Index measures fiscal performance of states.

• Statement 2 ✔️ Correct
  The index uses five pillars, including revenue mobilisation and debt sustainability.

• Statement 3 ❌ Incorrect
  The index is released by NITI Aayog, not RBI.

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Q2

With reference to the Fiscal Health Index, consider the following statements:

1. It includes both General Category States and North-Eastern/Himalayan states in the latest edition.

2. The index assesses fiscal health using five pillars including fiscal prudence and debt index.

3. States are classified as Achievers, Front-Runners, Performers, and Aspirational.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer: (d)

Explanation

• Statement 1 ✔️ Correct
  FHI 2026 expanded coverage to North-Eastern and Himalayan states.

• Statement 2 ✔️ Correct
  The index uses five fiscal pillars.

• Statement 3 ✔️ Correct
  States are categorized into Achievers, Front-Runners, Performers, Aspirational.

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Q3

Which of the following fiscal indicators are used to assess fiscal sustainability of states?

1. Debt-to-GSDP ratio

2. Fiscal deficit as percentage of GSDP

3. Capital expenditure share

(a) 1 only

(b) 1 and 2 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer: (d)

Explanation

All three indicators help measure fiscal health:

• Debt-GSDP ratio → measures debt burden

• Fiscal deficit → measures borrowing level

• Capital expenditure share → shows development spending.

Hence all are important fiscal indicators.

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Q4

With reference to the SDG India Index, consider the following statements:

1. It is released by NITI Aayog.

2. States are categorised into Aspirant, Performer, Front-Runner and Achiever.

3. Scores range between 0 and 100.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer: (d)

Explanation

• Statement 1 ✔️ Correct — released by NITI Aayog.

• Statement 2 ✔️ Correct — four categories based on score.

• Statement 3 ✔️ Correct — scoring scale is 0–100.

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Q5

Consider the following statements regarding the Fiscal Responsibility and Budget Management Act, 2003:

1. It aims to ensure fiscal discipline.

2. It sets limits on fiscal deficit levels.

3. It applies only to the Union Government and not to states.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer: (a)

Explanation

• Statement 1 ✔️ Correct
  FRBM promotes fiscal discipline.

• Statement 2 ✔️ Correct
  It sets fiscal deficit targets (around 3% of GDP).

• Statement 3 ❌ Incorrect
  States also follow FRBM-type fiscal responsibility laws.

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Q6

Which of the following best indicates the borrowing requirement of the government?

(a) Revenue deficit

(b) Fiscal deficit

(c) Primary deficit

(d) Capital deficit

Answer: (b)

Explanation

Fiscal deficit measures how much money the government needs to borrow.

Formula:

Fiscal Deficit =

Total Expenditure − Total Receipts (excluding borrowings)

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Q7

Consider the following statements:

1. Primary deficit excludes interest payments.

2. Fiscal deficit includes interest payments.

3. Revenue deficit indicates borrowing for consumption expenditure.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer: (d)

Explanation

• Statement 1 ✔️ Correct
  Primary deficit = Fiscal deficit − Interest payments.

• Statement 2 ✔️ Correct
  Fiscal deficit includes interest payments.

• Statement 3 ✔️ Correct
  Revenue deficit means borrowing for day-to-day expenses.

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Q8

Which of the following states were placed in the Achiever category in the Fiscal Health Index 2026?

1. Odisha

2. Goa

3. Jharkhand

4. Gujarat

(a) 1 and 2 only

(b) 1, 2 and 3 only

(c) 2 and 3 only

(d) 1, 2, 3 and 4

Answer: (b)

Explanation

Achiever states in FHI 2026:

• Odisha

• Goa

• Jharkhand

Gujarat is in the Front-Runner category, not Achiever.

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Q9

Which of the following best describes capital expenditure of the government?

(a) Spending on salaries and pensions

(b) Interest payments on public debt

(c) Expenditure that creates assets or infrastructure

(d) Subsidy payments to households

Answer: (c)

Explanation

Capital expenditure creates long-term assets such as:

• Roads

• Railways

• Irrigation

• Power plants

Other options are revenue expenditure.

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Q10

With reference to state finances in India, consider the following statements:

1. High revenue deficit reduces the ability of states to invest in infrastructure.

2. Higher capital expenditure generally improves long-term growth prospects.

3. Fiscal deficit measures the excess of total expenditure over total receipts excluding borrowings.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer: (a)

Explanation

• Statement 1 ✔️ Correct
  Revenue deficit means borrowing for consumption → less money for infrastructure.

• Statement 2 ✔️ Correct
  Capital expenditure increases economic growth.

• Statement 3 ❌ Incorrect
  Fiscal deficit = Expenditure − (Receipts excluding borrowings).
  The statement wrongly interprets the formula.

 

UPSC( 2026)Prelims: Fiscal Indicators 

Understanding fiscal indicators is important for topics like public finance, FRBM targets, and state finances. Below is a simple one-page chart you can revise quickly before prelims.

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1️⃣ Fiscal Deficit

Meaning:
The gap between total government expenditure and total revenue (excluding borrowings).

Formula

Fiscal Deficit =
Total Expenditure − (Revenue Receipts + Non-Debt Capital Receipts)

What it Shows

• Amount government needs to borrow.

FRBM Target

Under the Fiscal Responsibility and Budget Management Act, 2003:

Fiscal deficit target ≈ 3% of GDP/GSDP

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2️⃣ Revenue Deficit

Meaning:
Occurs when revenue expenditure exceeds revenue receipts.

Formula

Revenue Deficit =
Revenue Expenditure − Revenue Receipts

What it Shows

The government is borrowing just to fund daily expenses, not investments.

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3️⃣ Primary Deficit

Meaning:
Fiscal deficit minus interest payments.

Formula

Primary Deficit =
Fiscal Deficit − Interest Payments

What it Shows

Indicates current fiscal stance without past debt burden.

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4️⃣ Debt-to-GSDP Ratio

Meaning:
Measures total state debt relative to its Gross State Domestic Product (GSDP).

Formula

Debt-GSDP Ratio =
Total Debt / GSDP × 100

Ideal Level

States are usually expected to keep it around:

≈ 25–30% of GSDP

Higher values indicate fiscal stress.

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5️⃣ Interest Payments Ratio

Meaning:
Share of revenue used to pay interest on past debt.

Formula

Interest Payments Ratio =
Interest Payments / Revenue Receipts

Concern

If this exceeds 15–20%, fiscal stress increases.

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6️⃣ Capital Expenditure

Meaning:
Spending that creates assets or infrastructure.

Examples:

• Roads

• Railways

• Power plants

• Irrigation projects

Importance

High capital expenditure indicates development-oriented spending.

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7️⃣ Revenue Expenditure

Meaning:
Spending on day-to-day government operations.

Examples:

• Salaries

• Subsidies

• Pensions

• Interest payments

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Quick Comparison Chart

Indicator	What It Measures
Fiscal Deficit	Total borrowing requirement
Revenue Deficit	Borrowing for daily expenses
Primary Deficit	Fiscal deficit excluding interest
Debt-GSDP Ratio	State debt sustainability
Interest Payments Ratio	Debt servicing burden
Capital Expenditure	Investment in assets
Revenue Expenditure	Routine government spending

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UPSC Favourite Concepts

1️⃣ High Fiscal Deficit Means

More government borrowing.

2️⃣ High Revenue Deficit Means

The government is borrowing for consumption instead of investment.

3️⃣ High Debt-GSDP Ratio Means

Long-term fiscal stress.

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Prelims Trick

UPSC sometimes asks:

Which indicator shows borrowing excluding past interest burden?

Answer: Primary Deficit

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10-Second Memory Trick

FRPDICR

F → Fiscal Deficit
R → Revenue Deficit
P → Primary Deficit
D → Debt-GSDP
I → Interest payments
C → Capital expenditure
R → Revenue expenditure

 

UPSC (2026) Prelims: Major NITI Aayog Indices 

NITI Aayog releases several indices to evaluate the performance of states and UTs in governance, development, and economic reforms. These indices are important for competitive federalism and policy benchmarking.

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1️⃣ SDG India Index

Full Name: Sustainable Development Goals India Index

Purpose: Measures progress of states/UTs toward achieving the UN Sustainable Development Goals (SDGs).

Indicators

Covers areas such as:

• Health

• Education

• Gender equality

• Economic growth

• Climate action

• Institutions

Scoring

Range: 0–100

Category	Score
Aspirant	0–49
Performer	50–64
Front-Runner	65–99
Achiever	100

Important Fact

India’s score for 2023–24: 71 (Front-Runner category).

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2️⃣ Fiscal Health Index (FHI)

Purpose: Evaluates fiscal performance of states.

Key Pillars

1. Quality of expenditure

2. Revenue mobilisation

3. Fiscal prudence

4. Debt index

5. Debt sustainability

Important Fact

Fiscal Health Index 2026 expanded coverage to include North-Eastern and Himalayan states.

Top performer: Odisha.

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3️⃣ India Innovation Index

Purpose: Measures innovation capacity and ecosystem across states.

Parameters

• R&D investment

• Start-ups

• Human capital

• Knowledge output

• Business environment

Classification

Category
Major States
North-Eastern & Hill States
UTs / City-States

Key Insight

Innovation is concentrated in a few states such as:

• Karnataka

• Maharashtra

• Tamil Nadu

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4️⃣ Export Preparedness Index

Developed with the Institute of Competitiveness.

Purpose

Measures how ready states are to boost exports.

Pillars

1. Policy

2. Business ecosystem

3. Export ecosystem

4. Export performance

Importance

Helps states improve participation in global trade.

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5️⃣ School Education Quality Index (SEQI)

Purpose

Measures quality of school education.

Indicators

• Learning outcomes

• Infrastructure

• Teacher availability

• Governance

Objective

Encourage states to improve education quality rather than just enrolment.

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6️⃣ Health Index

Developed with the Ministry of Health and Family Welfare.

Purpose

Measures performance of states in health outcomes.

Indicators

• Infant mortality rate

• Maternal mortality

• Institutional deliveries

• Disease control

Categories

• Larger states

• Smaller states

• Union Territories

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7️⃣ Composite Water Management Index

Purpose

Measures efficiency of water resource management.

Indicators

• Irrigation

• Groundwater management

• Watershed development

• Drinking water supply

Importance

Addresses India’s water crisis and sustainability.

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8️⃣ Agricultural Marketing and Farmer Friendly Reforms Index

Purpose

Evaluates states based on reforms in:

• Agricultural marketing

• APMC reforms

• Land leasing laws

• Contract farming

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Quick Comparison Table

Index	Sector
SDG India Index	Sustainable development
Fiscal Health Index	State finances
India Innovation Index	Innovation ecosystem
Export Preparedness Index	Export competitiveness
School Education Quality Index	Education
Health Index	Public health
Water Management Index	Water resources
Agricultural Reform Index	Agricultural markets

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Important UPSC Pattern

UPSC often asks:

“Which of the following indices are released by NITI Aayog?”

Remember these major ones:

• SDG India Index

• Health Index

• Innovation Index

• Export Preparedness Index

• Fiscal Health Index

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Easy Memory Trick

Remember “SHIFWEA”

S → SDG Index
H → Health Index
I → Innovation Index
F → Fiscal Health Index
W → Water Management Index
E → Export Preparedness Index
A → Agricultural Reform Index