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.