The NITI Aayog on Friday released the Fiscal Health Index of 18 major states. The index ranks the states in terms of their contribution to India’s GDP, demography, total public expenditure, revenues, and overall fiscal stability. The index based on analysis for the financial year 2022-23 ranks Punjab at the bottom, with Andhra Pradesh, West Bengal, Kerala and Haryana occupying the bottom 5 places.
The index includes 18 major states in the country, and it does not include eight north-eastern states, Uttarakhand and Himachal Pradesh. It also excludes all union territories like Delhi, Jammu and Kashmir, Ladakh etc.
Odisha tops the index with an FHI score of 67.8, while the lowest ranked Punjab’s score is only 10.7. Other states in the top five are Chhattisgarh, Goa, Jharkhand and Gujarat, followed by Maharashtra and Uttar Pradesh.
The Fiscal Health Index evaluates states on five indicators: Quality of Expenditure, Revenue Mobilization, Fiscal Prudence, Debt Index and Debt Sustainability. Each of these five indicators have sub-indices under them. The data used to calculate the Fiscal Health Index is sourced from the Comptroller and Auditor General (CAG).
Punjab’s score was lowest in terms of Quality of Expenditure, Fiscal Prudence, and Debt index, while it did marginally better in the fields of Revenue Mobilization and Debt Sustainability. Odisha topped in the fields of Debt Index and Debt Sustainability.
The report stated, “Odisha excels in fiscal health with the highest overall index score of 67.8. It tops the Debt Index (99.0) and Debt Sustainability (64.0) rankings with better than average scores under Quality of Expenditure and Revenue Mobilization. The state has maintained low Fiscal Deficits, a good debt profile, and an above average Capital Outlay/GSDP ratio.”
For Punjab and other low-ranked states, the report said, “Punjab, Andhra Pradesh, West Bengal and Kerala lie in the aspirational category, each facing significant fiscal challenges. Kerala and Punjab struggle with low Quality of Expenditure and Debt Sustainability, while West Bengal faces Revenue Mobilization and Debt Index issues. Andhra Pradesh has high Fiscal Deficits, and Haryana has a poor debt profile. While debt growth and rising interest payments present fiscal challenges, these regions continue to navigate their financial landscapes with varied strategies.”
The report noted that the top states witness good scores under the Debt Index and Debt Sustainability, reflecting that these states have effective fiscal management practices and may have no risk of default on debt. On the other hand, states like West Bengal and Punjab witnessed growing debt burdens, increasing debt-to-GSDP ratios and raising serious concerns about debt sustainability.
The report stated that Odisha, Chhattisgarh, Goa, and Gujarat have consistently been the top performing states across all time periods considered in the study. While Jharkhand has shown improvement in its fiscal health, Karnataka experienced a decline in rankings. States like Goa, Telangana, and Maharashtra reported strong Revenue Mobilization across all periods.
On the other hand, States like Punjab, Kerala and West Bengal have consistently faced fiscal challenges over the past nine years. These states face high debt, large interest payments, weak revenue generation, and inefficiencies in capital expenditure, with reliance on non-tax revenue impacting their fiscal health and rankings.
