Context:

• The National Institution for Transforming India (NITI Aayog) has recently released its inaugural Fiscal Health Index (FHI) 2025, which ranks 18 major Indian states based on their fiscal performance for the financial year 2022-23. This report serves as a critical tool for evaluating the fiscal health of states, identifying areas for improvement, and promoting best practices across the country. Among the states assessed, Haryana's performance raises significant concerns, highlighting the need for immediate and sustained efforts to address its fiscal challenges.

Key Points:

• The FHI is designed to evaluate the fiscal health of states, encouraging balanced regional development, long-term fiscal sustainability, and prudent governance.
• The index covers states that significantly contribute to India's GDP, demography, public expenditure, revenues, and overall fiscal stability. The evaluation period spans from 2014-15 to 2022-23, allowing for a comprehensive analysis of trends in fiscal performance.

The FHI assesses states based on five key sub-indices:

1. Quality of Expenditure: Evaluates how effectively states utilize their financial resources.
2. Revenue Mobilisation: Measures the ability of states to generate revenue through various means.
3. Fiscal Prudence: Assesses overall fiscal discipline and management.
4. Debt Index: Measures the level of debt incurred by states and its implications for fiscal health.
5. Debt Sustainability: Evaluates the long-term sustainability of a state's debt levels.

Haryana's performance in the FHI 2025

Haryana has been ranked 14th among the 18 major states in the FHI, placing it among the bottom five. The state received an overall FHI score of 27.42 for the year 2022-23, indicating significant fiscal challenges. The report highlights several critical areas of concern regarding Haryana's fiscal health:

• Debt profile: Haryana's debt-to-Gross State Domestic Product (GSDP) ratio has increased from 26% in 2018-19 to 33% in 2020-21, stabilizing at 31% in 2022-23. This rising debt burden is alarming, particularly as interest payments have grown by 9.4% in 2022-23 compared to the previous year, consuming 23% of the state's revenue receipts. Haryana ranked 15th on the Debt Index parameter, performing better than only Kerala, West Bengal, and Punjab.
• Revenue Deficit: The state's revenue deficit stood at 1.7% of GSDP in 2022-23, failing to meet the recommendations set forth by the 15th Finance Commission. This indicates a structural imbalance in Haryana's fiscal framework, where expenditures exceed revenues, necessitating reliance on public debt to finance fiscal deficits.
• Quality of Expenditure: Haryana ranked 16th in terms of the quality of expenditure. The capital expenditure as a share of total expenditure has fallen from 16.4% in 2018-19 to just 9.7% in 2022-23. The growth of capital expenditure relative to GSDP has also declined, constituting only 1.4% of GSDP in 2022-23, which is below budget estimates. This decline in capital expenditure raises concerns about the state's commitment to long-term development and infrastructure investment.

Detailed Scores for Haryana (2022-23)

Recommendations for improvement

In light of these findings, NITI Aayog's report suggests several corrective measures for Haryana to enhance its fiscal health:

• Enhancing Revenue Mobilization: The state should implement strategies to diversify revenue sources, improve tax collection efficiency, and explore innovative financing mechanisms to boost its revenue base.
• Improving Expenditure Quality: Prioritizing capital expenditure is essential for fostering long-term growth and development. Haryana must focus on enhancing the efficiency and effectiveness of its public spending.
• Strengthening Fiscal Prudence: Adopting stringent fiscal management practices is crucial to control debt levels and ensure sustainable financial practices. This includes setting clear fiscal targets and adhering to them.
• Promoting Transparency and Accountability: Encouraging the adoption of best practices in financial management will enhance public trust and governance. This can be achieved through regular audits, public disclosures, and stakeholder engagement.