16th Finance Commission Launches Inaugural Issue of NITI Aayog’s Fiscal Health Index (FHI) 2025 Report

16th Finance Commission Launches Inaugural Issue of NITI Aayog’s Fiscal Health Index (FHI) 2025 Report

The 16th Finance Commission has unveiled the inaugural edition of NITI Aayog’s Fiscal Health Index (FHI) 2025 report. Given that states manage two-thirds of public spending and one-third of revenue, overseeing key development and infrastructure roles, their fiscal health is critical for national progress.

Key Findings of the Fiscal Health Index (FHI) 2025:

• Top Performing States: Odisha ranks highest in fiscal health, leading the Debt Index and Debt Sustainability rankings.
• Aspirational States: These states face considerable fiscal challenges, including poor expenditure quality, debt sustainability issues, and difficulties in revenue mobilization.
• Revenue Mobilization: Goa, Telangana, and Odisha are the leaders in revenue mobilization.
• Capital Expenditure: States ranked as Achiever and Front Runner allocate about 27% of their Developmental Expenditure to Capital Expenditure, while Performer and Aspirational States allocate only around 10%.
• Debt Sustainability: States like West Bengal and Punjab are facing growing debt burdens, raising concerns about their long-term debt sustainability.

About Fiscal Health Index (FHI) 2025:

• Purpose: The FHI evaluates the fiscal health of states to promote balanced regional development and economic stability.
• Assessment: It assesses the fiscal health of 18 major states.
• Based on Five Key Sub-Indices:
  • Quality of Expenditure
  • Revenue Mobilization
  • Fiscal Prudence
  • Debt Index
  • Debt Sustainability

Significance of FHI:

• Fiscal Health Framework: The FHI helps in fiscal consolidation, enhances transparency, and improves resource management.
• National Vision Alignment: It aligns with the vision of "Viksit Bharat @2047," emphasizing state-level fiscal discipline as central to India’s economic transformation.

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