More Stories

Informist, Friday, Jan. 24, 2025

NEW DELHI - A new NITI Aayog report has shown that Odisha's overall fiscal health was the best among 18 major states in the country during 2022-23 (Apr-Mar). On the other hand, opposition-ruled states were some of the worst performers.

The 'Fiscal Health Index 2025' report showed that Odisha, Chhattisgarh, and Goa had the best fiscal health in FY23, whereas West Bengal, Andhra Pradesh, and Punjab fared the worst.

The index has been computed by looking at five major sub-categories--revenue mobilisation, quality of expenditure, fiscal prudence, debt index, and debt sustainability.

Several opposition-ruled states have come under scrutiny from the central government, the central bank, and political corridors regarding their poor fiscal health. In December, a Reserve Bank of India report said that high debt levels of state governments necessitate a time-bound fiscal consolidation glide path. An RBI staff paper, also released in December, warned that freebies announced by state governments in recent months could eat into the money needed to take key infrastructure, both social and economic, further forward.

"We really need to pay a lot more attention and get more directly involved with states," Arvind Panagariya, chairman of the 16th Finance Commission, said at the launch of the report. NITI Aayog's Vice Chairperson Suman Bery said that in India that the interest outgo of states is managed by the Reserve Bank of India as states "more or less borrow at the same interest rate", which is not the case in countries such as the US where states borrow based on their own creditworthiness. 

"We are faced with cooperative and competitive federalism having to substitute for the fact that there isn't actually a market in state borrowing," said Bery, who is also the chairman of the economic advisory council to the prime minister. "I don't see that changing any time soon. Some of the market incentives for fiscal discipline that exist in other federations are absent. That means other tools and instruments are going to be required (for fiscal discipline of states)."

The NITI Aayog report suggested that Punjab, the worst performer in the overall index, prioritises enhancing revenue mobilisation, improving capital project execution, and addressing rising debt levels to ensure fiscal stability and support essential public services.

According to the report, states with the best fiscal health have high capital outlay, and low interest payments. These states also mobilise non-tax revenues effectively and create revenue surpluses. The states with the worst fiscal health struggle to meet fiscal and revenue deficit targets, have a high debt burden, and debt sustainability is a concern, the report said. 

"The analysis clearly highlights that strong revenue mobilisation, effective expenditure management, and prudent fiscal practices are critical determinants of success," the report said. "By evaluating and showcasing the performance of different states, the FHI (fiscal health index) aims to promote the adoption of effective fiscal management strategies and lead to improved fiscal discipline across states."

The performance of states varied across the five sub-indices. Uttar Pradesh and Bihar had a good score under the quality of expenditure, but they rank lower with regard to revenue mobilisation. Similarly, Karnataka performs well across most indices but it ranks amongst the three worst performers in debt sustainability.  End

Reported by Shubham Rana

Edited by Deepshikha Bhardwaj

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2025. All rights reserved.