It is both surprising, and perhaps unforgivable that Uttarakhand, Himachal Pradesh, Ladakh, Jammu and Kashmir, and the eight states of the North East: Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura – have not been included in the Fiscal Health Index (FHI) report 2025 released by Arvind Panagariya on January 24. Does it mean that these Himalayan states are out of the orbit when it comes to fiscal health, for Uttarakhand has always been among the top performing states on all the parameters. The statement that it covers the eighteen major states that drive the Indian economy in terms of their contribution to India’s GDP, demography, total public expenditure, revenues, and overall fiscal stability rubs salt into the wound: it is patently unfair – for is the NITI Ayog trying to say that there are no lessons to be learnt from these states, or that given the scale of their economy, it does not matter whether they perform well or not. This goes against the grain of cooperative federalism, for each unit is significant and unique, irrespective of its size and contribution. This is an issue which Chief Minister Dhami must take up with the Prime Minister, as well as with the NITI Aayog.
With this caveat, let us look into the five key indicators on which the ranking has been made. These include Expenditure Quality, viz efficiency and focus on developmental spending, Revenue Mobilisation, viz Tax and non-tax revenue generation capacity, Fiscal Prudence, the Ability to manage deficits besides Debt levels relative to revenue and Debt Sustainability, the capacity to maintain debt levels without fiscal stress.
There are four categories in which the states have been classified. Mineral-rich Odisha, Chhattisgarh, Goa and Jharkhand have emerged as top-performing ‘achievers’ among the States listed in NITI Aayog’s first Fiscal Health Index (FHI). These are followed by Maharashtra, Uttar Pradesh, Telangana, Madhya Pradesh, and Karnataka, classified as front-runners. Then we have the category of states which have performed well, but can do better. Tamil Nadu, Bihar, Rajasthan, and Haryana are placed in the performers’ category. Finally, there are states which are in deep distress: Punjab, Andhra Pradesh, West Bengal, and Kerala. Although they have euphemistically been called ‘aspirational’, the fact is that their debt levels have become unsustainable on account of policies which they continue to follow without reference to the fiscal health. These states face significant fiscal challenges, including high fiscal deficits besides low revenue mobilisation and an increasing debt burden, raising concerns about debt sustainability. However, the main concern is not their current debt, but the failure of any of the political parties to offer an alternative to the current regime of expanding welfare programmes without a commensurate economic foundation.
As the current report suggests, this is likely to be an annual exercise: therefore, one sincerely hopes that all states, irrespective of their size and contribution to the GDP of the country will be included. After all, even the contribution of the humble squirrel to the making of the bridge across Lanka was acknowledged by Lord Rama!
