Niti Aayog's Recommendations for State Fiscal Health

Niti Aayog urges state governments to adhere to fiscal discipline under the Fiscal Responsibility and Budget Management (FRBM) Act with an emphasis on disciplined expenditure management, broadening the GST base, and enhancing tax capacity.

FRBM Act

• Aims to regulate the country's debt by restricting fiscal and revenue deficits as a percentage of GDP.

Fiscal Health Index (FHI) 2026

The FHI 2026 provides a comprehensive framework to assess and compare states' fiscal performance.

• States with widening revenue deficits should align revenue expenditure with sustainable revenue growth.
• Top fiscally-wise states for 2023-24: 
  • Odisha, Goa, Jharkhand, Gujarat, Maharashtra, Chhattisgarh, Telangana, Uttar Pradesh, Karnataka, and Madhya Pradesh
• Improvements noted in Bihar, Karnataka, and Telangana.
• Lowest ranked: Punjab, West Bengal, and Kerala.

Performance Highlights

• High-performing states display strong fiscal discipline and resource mobilisation.
• Lower-ranked states show higher non-developmental expenditure and unsustainable fiscal patterns.

Regional Insights

• Among north-eastern and Himalayan states, Arunachal Pradesh leads, followed by Uttarakhand and Tripura.

Recommendations for Improvement

• Strengthen fiscal frameworks by improving revenue mobilisation through GST base broadening.
• Enhance own tax capacity and manage committed expenditure to restore fiscal flexibility.
• Rationalise subsidies and improve quality of capital spending.
• Adopt medium-term fiscal plans and manage off-budget borrowings effectively.

FHI Ranking Metrics

• States ranked on five sub-indices: 
  1. Quality of expenditure
  2. Revenue mobilisation
  3. Fiscal prudence
  4. Debt index
  5. Debt sustainability

The report was released by Niti Aayog Vice Chairman Suman Bery, highlighting the importance of maintaining strong fiscal health to buffer against both domestic and international economic shocks.