Fiscal Stress Looms for Punjab, Andhra Pradesh, and Kerala Due to Revenue Shortfalls and Rising Debt, Says NITI Aayog Report

NITI Aayog's Fiscal Health Index Reveals Mixed Fiscal Performance Among Indian States

The Fiscal Health Index, released by NITI Aayog on March 11, evaluated the fiscal performance of 18 major Indian states for the financial year 2023-24. The index assesses states across five key indicators: revenue mobilisation, quality of expenditure, fiscal prudence, debt levels, and debt sustainability.

Top Performers

The top five states in the index are Odisha, Chhattisgarh, Goa, Jharkhand, and Gujarat, which demonstrated relatively stronger fiscal management and debt sustainability. These states performed well across multiple indicators, including revenue mobilisation, prudent fiscal management, and sustainable debt levels.

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Weaker Performers

In contrast, Punjab, Andhra Pradesh, Kerala, and West Bengal were among the weakest performers in the index, indicating weaker fiscal metrics. Uttar Pradesh and Bihar were placed in the middle of the rankings, with Uttar Pradesh ranked 11th and Bihar ranked 13th.

Fiscal Health Index Calculation

The index is calculated across five sub-indices:

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• Revenue Mobilisation: measures the ability of states to generate tax and non-tax revenues
• Quality of Expenditure: assesses the share of productive or developmental spending
• Fiscal Prudence: reflects deficit management
• Debt Index: captures overall debt levels
• Debt Sustainability: evaluates the ability of states to service debt over time

Importance of State Finances

NITI Aayog noted that state finances play a crucial role in the country's overall fiscal stability, accounting for roughly two-thirds of public spending and about one-third of total revenue in India. The Fiscal Health Index has been developed as a composite framework to evaluate fiscal performance and encourage better financial management practices among states.