The Fiscal Health Index (FHI) is a comprehensive report released by NITI Aayog that evaluates the fiscal health of Indian states. It utilizes five key parameters: quality of expenditure, revenue mobilization, fiscal prudence, debt index, and debt sustainability. These criteria collectively offer a detailed picture of a state's financial status.
Fiscal health is crucial as it reflects a government's capacity to manage finances sustainably. This includes balancing revenue with expenditure, controlling debt levels, and making investments that foster long-term economic growth. A strong fiscal health is vital for ensuring a stable and robust economy.
According to the FHI 2025, Odisha, Chhattisgarh, and Jharkhand are the top performers. These states exemplify strong fiscal discipline and demonstrate effective financial management strategies, contributing to their favorable rankings.
On the contrary, Punjab, Andhra Pradesh, West Bengal, and Kerala rank lower in the index. These states encounter significant issues such as high debt levels, low revenue generation, and unsustainable expenditure patterns, which hinder their fiscal stability.
The FHI serves as a valuable tool for understanding the fiscal health of various states. It aids policymakers in pinpointing areas of concern and formulating corrective measures. Additionally, the report fosters healthy competition among states, encouraging them to enhance their fiscal management practices.
Q1. What does the Fiscal Health Index (FHI) measure?
Answer: The FHI measures the fiscal health of Indian states using parameters like quality of expenditure, revenue mobilization, fiscal prudence, debt index, and debt sustainability.
Q2. Why is fiscal health important for states?
Answer: Fiscal health is crucial as it ensures that states can manage their finances sustainably, balance budgets, control debt, and invest in economic growth.
Q3. Which states are leading in fiscal health?
Answer: Odisha, Chhattisgarh, and Jharkhand are leading states in fiscal health, demonstrating effective financial management and fiscal discipline according to FHI 2025.
Q4. What challenges do lower-ranking states face?
Answer: Lower-ranking states like Punjab and Kerala struggle with high debt, low revenue, and unsustainable expenditure, impacting their overall fiscal performance.
Q5. How can states improve their fiscal health?
Answer: States can improve fiscal health by enhancing tax collection, prioritizing developmental spending, maintaining fiscal discipline, and managing debt levels effectively.
Question 1: What does FHI stand for in the context of state finances?
A) Fiscal Health Index
B) Financial Health Indicator
C) Fiscal Hierarchy Index
D) Financial Health Index
Correct Answer: A
Question 2: Which states are noted as top performers in the FHI 2025?
A) Punjab, Andhra Pradesh, West Bengal
B) Odisha, Chhattisgarh, Jharkhand
C) Kerala, Karnataka, Telangana
D) Maharashtra, Gujarat, Rajasthan
Correct Answer: B
Question 3: What is one of the critical factors affecting fiscal health?
A) Quality of Expenditure
B) Population Growth
C) International Debt
D) Currency Exchange Rates
Correct Answer: A
Question 4: Which state is struggling with high debt according to the FHI?
A) Odisha
B) Chhattisgarh
C) Punjab
D) Jharkhand
Correct Answer: C
Question 5: What is a vital aspect of fiscal prudence?
A) Increasing debt
B) Balancing revenue and expenditure
C) High tax rates
D) Reducing infrastructure spending
Correct Answer: B
Question 6: What does revenue mobilization entail?
A) Reducing taxes
B) Improving tax collection efficiency
C) Minimizing expenditure
D) Increasing subsidies
Correct Answer: B
Question 7: Why is debt sustainability important?
A) It allows for more borrowing
B) It helps prevent future financial crises
C) It reduces revenue
D) It encourages spending
Correct Answer: B
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