Source: Mint
Context:
The NITI Aayog released the second annual edition of the Fiscal Health Index, assessing the fiscal performance of Indian states for FY 2023–24.
What is the Fiscal Health Index?
The Fiscal Health Index (FHI) is a framework designed to evaluate and compare the fiscal health of Indian states.
Unlike simple deficit measures, it provides a multi-dimensional assessment of fiscal sustainability, revenue strength, and debt management.
Core Pillars of the Index
The FHI evaluates states based on five key pillars:
- Quality of Expenditure
- Share of developmental and capital spending compared to committed expenditure.
- Revenue Mobilisation
- Capacity of states to generate own tax and non-tax revenues.
- Fiscal Prudence
- Management of deficits and compliance with Fiscal Responsibility and Budget Management Act norms.
- Debt Index
- Assessment of the size and burden of outstanding liabilities.
- Debt Sustainability
- Long-term ability of states to service debt without fiscal stress.
State Rankings (FY 2023–24)
Top Performing States
- Odisha – Rank 1 (Score: 73.1)
- Goa – Rank 2 (Score: 54.7)
- Jharkhand – Rank 3 (Score: 50.5)
- Gujarat – Rank 4
- Maharashtra – Rank 5
Bottom Performing States
- Punjab – Rank 18
- Andhra Pradesh – Rank 17
- West Bengal – Rank 16
- Kerala – Rank 15
Key Findings of the Report
1. Expanded Coverage
- The index now includes 10 North-Eastern and Himalayan states, acknowledging their geographic and structural fiscal challenges.
- Arunachal Pradesh emerged as the top performer among these states.
2. Strong Performance by Odisha
- Maintained leadership due to stable revenues, controlled deficits, and better fiscal management.
3. Fiscal Stress in Some States
States like Punjab, Kerala, and West Bengal face challenges due to:
- High debt levels
- Rising deficits
- Slower revenue growth.
4. Shift Toward Capital Expenditure
- Many states are increasingly focusing on capital spending and social sector investments.
5. Macro-Fiscal Importance
- State finances account for about one-third of India’s general government debt, making their fiscal health crucial for national economic stability.
Key Fiscal Challenges
1. High Committed Expenditure
- Salaries, pensions, and interest payments limit developmental spending.
- Example: In Punjab, committed expenditure reached 80% of revenue receipts in FY24.
2. Weak Own Revenue Mobilisation
- Heavy reliance on central transfers.
- Example: In Bihar, own revenues contribute less than one-third of total receipts.
3. Fiscal Deficit Breaches
- Example: Andhra Pradesh recorded a fiscal deficit of 4.35% of GSDP, exceeding the FRBM ceiling.
4. Rising Interest Burden
- Example: West Bengal spends over 20% of revenue receipts on debt servicing.
5. Geographic Constraints
- Example: Himachal Pradesh faces high infrastructure costs due to mountainous terrain.
