Niti Aayog urges States to adhere to fiscal deficit norms
Government think tank Niti Aayog on Wednesday urged state Governments to adhere to fiscal deficit norms under the FRBM Act through disciplined expenditure management, broadening the GST base, and enhancing their own tax capacity.
The Fiscal Responsibility and Budget Management (FRBM) Act aims to regulate the country’s debt level by restricting fiscal and revenue deficits as a percentage of GDP. Niti Aayog’s 2026 Fiscal Health Index (FHI) for 2023-24 suggests that states with widening revenue deficits should prioritise aligning revenue expenditure with sustainable revenue growth.
Odisha, Goa, Jharkhand, Gujarat, Maharashtra Chhattisgarh, Telangana, Uttar Pradesh, Karnataka and Madhya Pradesh have emerged as India’s top 10 fiscally-wise States, according to the latest fiscal health index for the financial year 2023-24. Bihar, Karnataka and Telangana showed a mild recovery, whereas Punjab, West Bengal and Kerala remained at the bottom of the index.
In the FHI of 2025, which ranked states based on their fiscal situation during 2022-23, Odisha was number 1, followed by Chhattisgarh, Goa, Jharkhand and Gujarat.
Overall, higher-ranked states display stronger fiscal discipline and resource mobilisation efforts, while lower-ranked States exhibit higher non-developmental expenditure and less sustainable fiscal patterns, the FHI 2026 report said.
Among north-eastern and Himalayan states, Arunachal Pradesh has topped in the index, followed by Uttarakhand, Tripura, Meghalaya, Assam and Mizoram. The report was released by Niti Aayog Vice Chairman Suman Bery.
“We are seeing at the national level shocks that come from a number of sources. We are talking international shocks, but there are domestic shocks as well... So one important developmental consequence of maintaining strong fiscal health is, of course, to have a buffer when shocks hit,” he said.
The FHI is a comprehensive framework for assessing and comparing the fiscal performance of States. It outlines each State’s fiscal strengths, weaknesses, and overall profile. “States should prioritise strengthening their fiscal frameworks by improving revenue monbilisation, primarily through broadening GST bases and enhancing own tax capacity by curbing committed expenditure to restore fiscal flexibility,” the report said.
Rationalising subsidies, adopting standard expenditure heads, improving the quality and composition of capital spending, and adopting medium-term fiscal plans can help contain deficits and stabilise debt trajectories.“States with persistent stress must undertake targeted consolidation measures, including tighter control of off-budget borrowings, and better cash and debt management,” it added.
The FHI ranks states on five major sub-indices that include quality of expenditure, revenue mobilisation, fiscal prudence, debt index, and debt sustainability.
