NITI Aayog has released Fiscal Health Index (FHI) 2026, a diagnostic tool evaluating the fiscal performance of Indian states for FY 2023-24. The index assesses 18 major states and 10 North-Eastern (NE) and Himalayan states across five critical pillars: Quality of Expenditure, Revenue Mobilisation, Fiscal Prudence, Debt Index, and Debt Sustainability.
The report identifies Odisha (Major States) and Arunachal Pradesh (NE/Himalayan) as the top performers due to controlled deficits and prudent debt management. Conversely, states like Punjab and Kerala remain in the "Aspirational" category, facing persistent stress from rising debt and structural rigidities. This index acts as a primary mechanic for evidence-based policymaking, guiding states toward the fiscal resilience required to achieve the vision of "Viksit Bharat @2047".
State Rankings & Performance
The FHI categorizes states based on their composite scores, recognizing the distinct geographic and structural challenges of NE/Himalayan regions.
1. Major States
Achievers (Top 3): Odisha (Rank 1, Score 73.1), Goa (Rank 2, Score 54.7), and Jharkhand (Rank 3, Score 50.5).
Front Runners: Gujarat, Maharashtra, Chhattisgarh, Telangana, Uttar Pradesh, and Karnataka.
Performers: Madhya Pradesh, Haryana, Bihar, Tamil Nadu, and Rajasthan.
Aspirational: Kerala, West Bengal, Andhra Pradesh, and Punjab (facing highest persistent stress).
2. NE and Himalayan States
Achievers: Arunachal Pradesh (Rank 1, Score 59.5) and Uttarakhand (Rank 2, Score 52.5).
Performers: Tripura, Meghalaya, Assam, Mizoram, and Sikkim.
Aspirational: Nagaland, Himachal Pradesh, and Manipur.
Key Findings & Structural Challenges
The Odisha Model: Success is driven by controlled deficits, stable revenues, and strong debt management.
Revenue Dependency: NE/Himalayan states face extreme dependency on central transfers, with some receiving up to 90% of their revenue from the Union Government.
Fiscal Rigidities: Many "Aspirational" states are constrained by high committed expenditure (salaries, pensions) and rising interest burdens.
Debt Divergence: While Gujarat and Odisha maintain low interest burdens, Punjab, Kerala, and West Bengal face elevated debt commitments.
Strategic Recommendations for States
To improve fiscal health and stabilize debt, the report proposes the following functional reforms:
Broadening Tax Bases: Focus on enhancing own-tax capacity and broadening the GST base to reduce dependency on central transfers.
Rationalising Expenditure: States must focus on rationalising subsidies and improving the quality of capital spending to drive growth.
Medium-Term Planning: Adopting multi-year fiscal plans is a prerequisite for containing deficits and ensuring debt sustainability.
Data Transparency: Strengthening Public Financial Management Systems (PFMS) and using CAG-verified data are essential for fiscal transparency.
Policy Relevance: Strengthening Cooperative Federalism
Operationalising Fiscal Governance: The FHI serves as a primary mechanic for NITI Aayog to nudge states toward competitive and cooperative federalism.
Internalising Debt Sustainability: The index provides a functional framework for the 16th Finance Commission to consider performance-linked incentives for debt-stressed states.
Bypassing Regional Disparities: Identifying the unique costs of service delivery in NE/Himalayan states is a prerequisite for tailored central support.
Link to Viksit Bharat: Stabilizing state finances is a foundational step in ensuring that regional disparities do not stall national economic momentum.
Follow the Full Report Here: NITI Aayog: Fiscal Health Index 2026 - March 2026
