Fiscal Health Index (FHI) 2026

Why in the news?

The Fiscal Health Index 2026 was recently released by NITI Aayog.

This is the second edition of the index and evaluates fiscal performance of Indian states for FY 2023–24.

A major update in this edition is the inclusion of North-Eastern and Himalayan states, making the assessment more comprehensive.

What is the Fiscal Health Index (FHI)?

The Fiscal Health Index is a framework used to assess and compare the fiscal performance of Indian states.

It measures how effectively states manage:

Revenue generation
Public expenditure
Fiscal deficit
Debt sustainability

The index helps policymakers identify strong fiscal performers and fiscally stressed states.

Why Fiscal Health Matters

Indian states play a major role in funding key sectors such as:

Agriculture
Poverty alleviation
Human development
Infrastructure
Urban development

Better fiscal management leads to:

Higher economic growth
Improved public services
Balanced regional development.

Coverage of the 2026 Index

First Edition

Evaluated 18 major states.

Second Edition (FHI 2026)

Expanded to include:

18 General Category States
10 North-Eastern and Himalayan states

This expansion reflects India’s fiscal diversity, since these regions face:

Geographic remoteness
Higher service delivery costs
Smaller tax bases.

Five Pillars of Fiscal Health

The index measures fiscal performance using five key pillars:

Quality of Expenditure
Measures spending on developmental sectors.
Revenue Mobilisation
Ability of states to generate their own revenue.
Fiscal Prudence
Discipline in managing fiscal deficits.
Debt Index
Measures overall debt burden.
Debt Sustainability
Ability to repay debt without fiscal stress.

Top Performing States (2023–24)

The Achiever category includes states with strong fiscal discipline.

Achievers

Odisha – Top performer
Goa
Jharkhand

These states demonstrate:

High own-tax revenue (>60%)
Higher capital expenditure
Low fiscal deficits (<3% of GSDP)
Moderate debt levels (<25% of GSDP)

Front-Runner States

States performing well but not yet at the top level include:

Gujarat
Maharashtra
Chhattisgarh
Telangana
Uttar Pradesh
Karnataka

These states show relatively strong revenue mobilisation and fiscal management.

Performer States

These states show moderate fiscal performance:

Madhya Pradesh
Haryana
Bihar
Tamil Nadu
Rajasthan

Some of them have shown recent improvements in fiscal management.

Aspirational States

States facing fiscal challenges include:

Punjab
West Bengal
Kerala
Andhra Pradesh

Key problems in these states:

Persistent fiscal deficits
High debt levels (35–45% of GSDP)
High committed expenditure
Lower developmental spending.

North-Eastern and Himalayan States Ranking

These states were ranked separately.

Achievers

Arunachal Pradesh
Uttarakhand

Performers

Assam
Meghalaya
Mizoram
Sikkim
Tripura

Aspirational

Himachal Pradesh
Manipur
Nagaland

Among these states:

Arunachal Pradesh ranked first
Himachal Pradesh and Manipur ranked lowest.

Key Insights from the Index

Strong Fiscal States

Higher ranked states generally show:

Strong tax collection
Lower fiscal deficit
Higher capital expenditure
Sustainable debt levels.

Weaker Fiscal States

Lower ranked states face:

Revenue shortages
High debt
Large interest payments
High non-development expenditure.

Link with Other Governance Indices

Another important index released by NITI Aayog is the SDG India Index.

This index tracks progress of states on Sustainable Development Goals (SDGs).

SDG Index Categories

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

India’s SDG score for 2023–24 was 71, placing it in the Front-Runner category.

Why This Index Is Important for UPSC

The Fiscal Health Index helps evaluate:

State-level fiscal discipline
Regional development disparities
Public finance management

This is relevant for:

GS-3 (Economy)
Federalism and fiscal policy
Public expenditure management

Possible UPSC Prelims Question

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

It is released by the Reserve Bank of India.
It assesses the fiscal performance of Indian states.
The 2026 edition expanded coverage to include North-Eastern and Himalayan states.

Which of the statements given above is/are correct?

A. 1 and 2 only

B. 2 and 3 only

C. 1 only

D. 1, 2 and 3

Answer: B

Explanation:

Statement 1 ❌ Incorrect — released by NITI Aayog, not RBI.
Statement 2 ✔️ Correct.
Statement 3 ✔️ Correct.

Suryavanshi IAS

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