New Delhi, March 11 The government think tank, Niti Aayog, urged state governments on Wednesday to adhere to fiscal deficit norms under the FRBM Act through disciplined expenditure management, expanding 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 prioritize 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-sound states, according to the latest fiscal health index for the financial year 2023-24.
Bihar, Karnataka, and Telangana showed a mild recovery, while Punjab, West Bengal, and Kerala remained at the bottom of the index.
In the 2025 FHI, which ranked states based on their fiscal situation during 2022-23, Odisha was number 1, followed by Chhattisgarh, Goa, Jharkhand, and Gujarat.
Overall, states with higher rankings display stronger fiscal discipline and resource mobilization efforts, while states with lower rankings exhibit higher non-developmental expenditure and less sustainable fiscal patterns, the FHI 2026 report said.
Among the north-eastern and Himalayan states, Arunachal Pradesh topped 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 about international shocks, but there are also domestic shocks... 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 prioritize strengthening their fiscal frameworks by improving revenue mobilization, primarily through expanding GST bases and enhancing their own tax capacity by curbing committed expenditure to restore fiscal flexibility," the report said.
Rationalizing subsidies, adopting standard expenditure heads, improving the quality and composition of capital spending, and adopting medium-term fiscal plans can help contain deficits and stabilize 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 the quality of expenditure, revenue mobilization, fiscal prudence, debt index, and debt sustainability.