Balancing Budgets and Development: Inside NITI Aayog’s Fiscal Health Index

NITI Aayog’s Fiscal Health Index (FHI) 2026 offers a comprehensive view of the fiscal performance and sustainability of Indian states based on FY 2023-24 data. Odisha tops the rankings with a score of 67.8, followed by Chhattisgarh and Goa , reflecting strong revenue balances, moderate debt levels, and higher-quality public expenditure. For the first time, the index includes North-Eastern and Himalayan states as a separate analytical category, enabling nuanced comparisons across diverse fiscal contexts. At the lower end, Punjab, West Bengal, and Andhra Pradesh remain under fiscal stress, grappling with high debt burdens, rising interest payments, and limited fiscal space for development.

The report shows continuity in state performance, with Odisha maintaining its top position, while Goa and Chhattisgarh remain among the upper tier, reflecting sustained efforts in revenue mobilisation and expenditure control. Covering 18 major states, the FHI evaluates revenue generation, debt sustainability, fiscal prudence, and quality of public expenditure, combining these into a composite score to guide transparency and policy reform. Fiscal strength is assessed across five core pillars: quality of expenditure (30%) , revenue mobilisation (20%) , fiscal prudence (20%) , debt index (15%) , and debt sustainability (15%) . Higher capital spending, robust revenue generation, adherence to fiscal deficit targets, and manageable debt are key drivers of performance. For the North-Eastern and Himalayan states, the methodology incorporates structural challenges such as difficult terrain, limited revenue capacity, higher committed expenditures, and dependence on Union transfers, producing separate rankings for these ten states.

Among the “Achiever” group, Odisha, Goa, and Jharkhand exhibit strong fiscal discipline, with own-tax revenues over 60% of total revenue and capital outlays around 4–5% of GSDP. Front-runners like Gujarat, Maharashtra, Telangana, Uttar Pradesh, Karnataka, and Chhattisgarh retain their positions with minor reshuffling. Telangana shows modest recovery, whereas Andhra Pradesh continues to face pressures from high deficits and growing expenditure commitments. In the North-Eastern and Himalayan category, Arunachal Pradesh and Uttarakhand are top performers, while Himachal Pradesh and Manipur remain at the bottom due to weak revenue bases and dependence on transfers exceeding 80% of revenue.

Leading states demonstrate that fiscal discipline and development spending can coexist , with Odisha excelling in debt management and capital expenditure, supported by strong non-tax revenues from mining and royalties. Goa benefits from robust own-revenue sources linked to tourism, and Jharkhand has improved fiscal balance via better revenue mobilisation and moderate borrowing. In contrast, bottom-ranked states face structural weaknesses: Punjab bears a debt-to-GSDP ratio above 45%, while West Bengal and Kerala grapple with high interest burdens, salaries, and pensions that crowd out development spending. Limited capital outlays and persistent deficits constrain growth-enhancing investment.

The FHI emphasises that fiscal health is central to economic stability, enabling states to sustain development spending, contain interest burdens, and allocate resources to infrastructure, health, and education. States with weak fiscal indicators risk future shocks as rising debt and revenue deficits restrict capital investment. The report recommends expanding tax bases, improving GST compliance, prioritising capital over revenue spending, adhering to fiscal deficit limits, and strengthening debt management . Institutional mechanisms such as finance commissions and fiscal responsibility laws are pivotal in guiding sustainable fiscal practices. Strengthened fiscal discipline is crucial for balancing developmental ambitions with long-term financial stability.