Policy Update
Aditya Chavan
Background
India’s fiscal stability is closely linked to the financial health of its states, which account for a significant share of public expenditure and revenue. Differences in revenue mobilisation, expenditure quality, fiscal deficits and debt levels can create substantial variation in the fiscal resilience of individual states. NITI Aayog introduced the Fiscal Health Index (FHI) as a systematic framework to assess and benchmark the fiscal performance of states. States can track their performance across the five pillars: Quality of Expenditure, Revenue Mobilisation, Fiscal Prudence, Debt Index and Debt Sustainability: year-on-year and identify areas where deterioration is taking place (NITI Aayog, 2026a).
The Fiscal Health Index 2026, published in March 2026, is the second annual edition of the Index and evaluates state finances for FY 2023–24 (NITI Aayog, 2026a). Building on the inaugural edition released in January 2025 (NITI Aayog, 2025), it assesses the 18 major states and separately included 10 North-Eastern and Himalayan states, through five dimensions: Quality of Expenditure, Revenue Mobilisation, Fiscal Prudence, Debt Index and Debt Sustainability. The Index is constructed using fiscal data sourced from the Comptroller and Auditor General of India (CAG).
The latest edition shows considerable divergence in fiscal performance. Odisha ranked first with a score of 73.1, while Punjab ranked eighteenth with 12.4, highlighting substantial differences in states’ capacity to maintain fiscal stability (NITI Aayog, 2026a).
Importantly, the FHI is intended to function beyond a ranking mechanism. By benchmarking state finances across common fiscal indicators, it seeks to identify areas of strength and vulnerability and encourage improvements in public financial management (Press Information Bureau, 2026).
Policy / Index Snapshot
| Feature | Fiscal Health Index 2026 |
| Institution | NITI Aayog |
| Assessment year | FY 2023–24 |
| Coverage | 18 Major States + 10 North-Eastern & Himalayan States |
| Fiscal Pillars | 5 pillars |
| Pillars | Quality of Expenditure, Revenue Mobilisation, Fiscal Prudence, Debt Index, Debt Sustainability |
| Data source | Comptroller and Auditor General of India (CAG) |
| Purpose | Benchmark states’ fiscal performance and identify areas requiring improvement |
(Source: NITI Aayog, 2026a.)
Functioning & Methodology
The Fiscal Health Index sub-indices assess the overall financial position of states. For the 18 major states, these are built from 10 fiscal parameters using budgetary data for FY 2023–24 (NITI Aayog, 2026a).
| Pillar | What it examines |
| Quality of Expenditure | Developmental expenditure and capital outlay |
| Revenue Mobilisation | State’s own revenue relative to GSDP and expenditure |
| Fiscal Prudence | Fiscal deficit and revenue deficit |
| Debt Index | Interest burden and outstanding liabilities |
| Debt Sustainability | Whether economic growth is keeping pace with the cost of borrowing |
(Source: NITI Aayog, 2026a.)
The indicators are then aggregated to produce an overall FHI score, allowing states to be compared on their fiscal performance. NITI Aayog also uses the same five broad pillars for North-Eastern and Himalayan states, but modifies the underlying indicators to account for their distinct structural and fiscal characteristics.
The key point is that the Index does not treat fiscal health as simply “low debt equals good finances.” It looks at the quality of spending, ability to generate revenue, fiscal discipline and long-term debt sustainability together.
Key Findings
The Fiscal Health Index 2026 reveals a substantial divergence in the fiscal performance of India’s major states. Among the 18 major states assessed, Odisha emerged as the strongest performer with a score of 73.1, followed by Goa (54.7) and Jharkhand (50.5). At the other end, Punjab recorded the lowest score at 12.4, preceded by Andhra Pradesh (23.1) and West Bengal (23.8) (NITI Aayog, 2026a).
Figure 1 — Fiscal Health Index 2026: Ranking of 18 Major States
A horizontal bar chart showing all 18 major states, ranked from highest to lowest:
(Source: NITI Aayog, 2026a)
The results also show that strong fiscal health is not determined by a single indicator. Odisha, for instance, performs strongly across all five pillars, particularly Revenue Mobilisation (80.3), Debt Index (95.8) and Quality of Expenditure (71.2). Its strong performance is associated with prudent deficit management, robust own-source revenues and a declining debt burden.
The report categorises the 18 major states into four groups based on their overall scores. Odisha, Goa and Jharkhand are classified as Achievers, while Gujarat, Maharashtra, Chhattisgarh, Telangana, Uttar Pradesh and Karnataka fall under Front Runners. Madhya Pradesh through Rajasthan are classified as Performers, while Kerala, West Bengal, Andhra Pradesh and Punjab fall into the Aspirational category (NITI Aayog, 2026a).
A particularly important finding is the difference between expenditure quality and fiscal sustainability. Some states perform reasonably well in terms of expenditure but face weaknesses in revenue mobilisation or debt sustainability. Jharkhand, for example, scores 66.3 on Quality of Expenditure but only 26.3 on Debt Sustainability, showing that good expenditure performance alone does not guarantee long-term fiscal stability.
The bottom-performing states also illustrate this multidimensional problem. Punjab’s overall score of 12.4 is accompanied by particularly weak scores in Quality of Expenditure (8.1), Fiscal Prudence (5.9) and Debt Index (2.1). Similarly, Andhra Pradesh records a relatively better Quality of Expenditure score of 43.1 but much weaker Fiscal Prudence (9.9) and Debt Sustainability (4.2) (NITI Aayog, 2026a).
The Index also provides a long-term perspective, comparing fiscal performance across periods from 2014–15 to 2023–24. Odisha has remained at or near the top throughout these periods, while Punjab has consistently remained at the bottom. This suggests that differences in fiscal health are not merely the result of one year’s budgetary decisions but can reflect persistent structural differences in revenue capacity, expenditure commitments and debt management (NITI Aayog, 2026a).
Overall, the findings point towards a growing divergence in state fiscal capacity. States with stronger revenue mobilisation, disciplined expenditure and better debt management have been able to consolidate their fiscal position, while states facing rigid expenditure structures, weaker revenue mobilisation and higher debt pressures have less room for productive spending and fiscal adjustment.
Policy Significance
The Fiscal Health Index 2026 is significant because it shifts attention from isolated fiscal indicators to the overall quality and sustainability of state finances. By assessing revenue mobilisation, expenditure quality, fiscal prudence, debt sustainability and debt index together, it provides a broader basis for comparing states.
The findings also strengthen the idea of competitive fiscal federalism. States can identify their weaknesses by comparing themselves with better-performing states and use these benchmarks to improve revenue generation, expenditure management and debt sustainability.
At the same time, the Index shows that states face very different fiscal realities. Odisha, Goa and Jharkhand’s placement in the Achiever category reflects comparatively stronger overall fiscal performance rather than uniform strength across every pillar, while Punjab, West Bengal and Kerala’s position in the Aspirational category points to persistent, though not identical, debt and deficit pressures across these states (NITI Aayog, 2026a). Most importantly, the FHI can function as a diagnostic policy tool rather than merely a ranking exercise. Its state-level scores help highlight where fiscal reforms are most urgently required (Press Information Bureau, 2026).
Emerging Issues
Despite its usefulness, the Fiscal Health Index 2026 has some limitations that need to be considered while interpreting the rankings.
First, a single composite score can hide differences across individual fiscal dimensions. A state may perform well overall while still having weaknesses in areas such as debt sustainability or revenue mobilisation.
Second, states have different economic and structural conditions. This is why NITI Aayog separately assesses North-Eastern and Himalayan states. Comparing states only through their overall scores may therefore overlook differences in fiscal capacity and expenditure requirements.
Third, improving a state’s ranking does not automatically mean that its fiscal position has become permanently sustainable. Fiscal health depends on long-term revenue growth, expenditure commitments and debt management, which require continuous improvement rather than one-time adjustments.
Finally, the Index should be treated as a benchmark and diagnostic tool, rather than as a definitive measure of the overall quality of a state’s governance or development.
Way Forward
The findings of the Fiscal Health Index suggest that improving fiscal health requires long-term, state-specific reforms rather than a uniform approach. Since states differ considerably in their revenue capacity, expenditure commitments and debt positions, policy responses should be aligned with their individual fiscal weaknesses.
1. Strengthen own-source revenue mobilisation:
States should focus on improving tax collection, widening their revenue base and reducing leakages. Greater economic activity in productive sectors can also expand a state’s own revenue capacity and reduce excessive dependence on transfers.
2. Improve the quality of public expenditure:
Fiscal consolidation should not simply mean cutting expenditure. States need to shift resources towards capital expenditure, infrastructure and human capital, while improving the efficiency of existing spending. This would allow fiscal discipline to coexist with development objectives.
3. Adopt state-specific debt management strategies:
States facing high debt and interest burdens need stronger debt-management frameworks. Controlling the growth of outstanding liabilities and ensuring that borrowing supports productive investment can help create greater fiscal space over the long term.
4. Use FHI for continuous fiscal monitoring:
The Index should be used beyond an annual ranking exercise. States can track their performance across the five pillars year-on-year and identify areas where deterioration is taking place. This would make the FHI a regular diagnostic mechanism for public financial management rather than simply a comparative ranking. NITI Aayog itself emphasises the role of the Index in identifying fiscal vulnerabilities and promoting best practices (Press Information Bureau, 2026).
5. Encourage peer learning between states:
Higher-performing states can provide useful policy lessons for states facing similar fiscal challenges. However, these practices should be adapted to local economic and structural conditions rather than replicated mechanically.
6. Strengthen fiscal data systems:
Reliable and timely fiscal data is essential for meaningful benchmarking. Strengthening the systems for production, coordination and publication of state fiscal data would improve the accuracy and usefulness of future editions of the Index.
Overall, the objective should be to move from fiscal ranking to fiscal reform. The FHI can become more valuable when states use their scores to identify specific weaknesses, implement targeted reforms and track whether these reforms are actually improving fiscal sustainability over time. This would help align state-level fiscal management with India’s broader objectives of sustainable and inclusive economic growth.
References
NITI Aayog. (2026a, March 11). Fiscal Health Index 2026 [PDF report]. Government of India.https://www.niti.gov.in/sites/default/files/2026-03/Fiscal-Health-Index-2026.pdf
NITI Aayog. (2026b, March 11). Fiscal Health Index 2026 [Web page]. Government of India.https://www.niti.gov.in/whats-new/fiscal-health-index-2026
Press Information Bureau. (2026, March 11). NITI Aayog launches Fiscal Health Index 2026. Government of India.https://www.pib.gov.in/PressReleasePage.aspx?PRID=2238302
NITI Aayog. (2025, January 24). Fiscal Health Index 2025. Government of India.https://www.niti.gov.in/node/1527
About the Contributor
Aditya Chavan is an Economics undergraduate at Symbiosis School of Economics, Pune, with research interests spanning public policy, MSME development, financial inclusion, and economic governance. His work focuses on analysing government policies and institutional reforms aimed at fostering inclusive and sustainable economic development.
Acknowledgement
The author is grateful to IMPRI – Impact and Policy Research Institute for the opportunity to prepare this policy update, and acknowledges the guidance and feedback received during the review process, which helped strengthen the quality of this article.
Disclaimer
The views expressed in this article are solely those of the author and do not necessarily reflect the views of IMPRI or any affiliated institution.
Reviewers:
Vanchha Arora and Manisha Kumari
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