WHAT?

1. The Fiscal Health Index (FHI) is a composite measure developed by NITI Aayog, India's policy think tank, to evaluate the fiscal performance of major Indian states. It assesses aspects such as expenditure quality, revenue generation, fiscal discipline, debt management, and long-term debt sustainability, using data primarily from the Comptroller and Auditor General (CAG) report. 
2. The index aims to highlight strengths and weaknesses in state finances, guide policy reforms, promote best practices, and ensure transparency for sustainable economic growth.
3. It covers 18 major states (excluding Himalayan and North-Eastern states due to their unique fiscal profiles), which together represent a significant portion of India's GDP, population, and public spending.
4. Methodology : The FHI is constructed using five major sub-indices, each derived from specific indicators. These sub-indices are equally weighted through an arithmetic mean in the final score calculation. 
5. The sub-indices are:
   1. Quality of Expenditure: Arithmetic mean of Total Developmental Expenditure/Total Expenditure and Total Capital Outlay/Gross State Domestic Product (GSDP).
   2. Revenue Mobilization: Arithmetic mean of State Own Revenue/GSDP and State Own Revenue/Total Expenditure.
   3. Fiscal Prudence: Arithmetic mean of Gross Fiscal Deficit/GSDP and Revenue Deficit/GSDP (lower values rewarded).
   4. Debt Index: Arithmetic mean of Interest Payments/Revenue Receipts and Outstanding Liabilities/GSDP (lower values rewarded).
   5. Debt Sustainability: Single indicator of GSDP Growth Rate minus Interest Payments Growth Rate (higher values rewarded).

The final FHI score (out of 100) is the arithmetic mean of these five sub-indices, with higher scores indicating better fiscal health. States are then ranked accordingly. States are informally categorized as Achievers (>50), Front Runners (>40-50), Performers (>25-40), or Aspirational (≤25) for interpretive purposes. 

Key Analysis

1. Odisha excels due to low fiscal deficits, high capital outlay relative to GSDP, and strong debt management (e.g., a Debt Index score of 99.0). States like Chhattisgarh and Goa benefit from effective revenue mobilization and prudent borrowing.
2. Punjab and Andhra Pradesh face high debt burdens, revenue deficits, and reliance on borrowings for operational expenses. West Bengal and Kerala struggle with declining capital expenditure and weak own-revenue generation.
3. Many states show improvements in fiscal prudence post-COVID, but revenue mobilization remains uneven, with some relying heavily on central transfers. Debt sustainability is a concern in populous states like Bihar and Rajasthan.
4. Lower-ranked states should prioritize expanding tax bases (e.g., via better GST compliance), boosting non-tax revenues, increasing developmental spending in sectors like health and education, and reducing interest burdens through efficient debt restructuring. 
5. Policymakers are encouraged to use the FHI for targeted reforms to align with national goals like fiscal consolidation under the Fiscal Responsibility and Budget Management Act.