Why in News? 

The Fiscal Health Index 2025 by NITI Aayog ranks Indian states based on their income management, development spending and debt handling. 

What is the Fiscal Health Index (FHI)? 

The Fiscal Health Index (FHI) is a tool used to assess the fiscal health of Indian states and identify areas for improvement. 

Parameters 

FHI ranks states based on five key sub-indices: 

• Quality of Expenditure: Measures the balance between spending on long-term growth (developmental) and routine operations (non-developmental), as well as capital investments relative to economic output. 
• Revenue Mobilization: Evaluates a state's ability to generate its own revenue and cover expenditures independently. 
• Fiscal Prudence: Monitors fiscal and revenue deficits and borrowing levels relative to economic output, indicating fiscal health. 
• Debt Index: Assesses the state's debt burden, focusing on interest payments and liabilities in relation to economic size. 
• Debt Sustainability: Compares GSDP growth to interest payments, with a positive difference indicating fiscal sustainability. 

Objective: The FHI aims to guide policymakers in implementing reforms for sustainable growth, fiscal consolidation, and efficient resource management at the state level. It also promotes healthy competition among states, aligning fiscal strategies with national economic goals. 

Top performing states