Blitz Bureau
States are primary agents for implementing infrastructure projects such as roads, bridges, industrial parks, and power generation facilities. A fiscally sound state can invest more in infrastructure, which is key to fostering economic growth and attracting private investment
States of India are not exactly in the pink of health, fiscally. A NITI Aayog document released recently shows that several states in India face issues such as high debt-to-GDP ratios, excessive subsidies, and poor tax collection efficiency. The Aayog’s 2022-23 Fiscal Health Index (FHI), based on data from the Comptroller and Auditor General, provides an analysis of the fiscal performance of 18 major Indian states.
Odisha has emerged as the top-performing state with a score of 67.8, followed by Chhattisgarh (55.2) and Goa (53.6). These states excelled in maintaining fiscal balance and optimising developmental expenditure.
On the other hand, Punjab ranked last with a score of 10.7, reflecting significant fiscal challenges.
Odisha excelled in debt management and effective revenue mobilisation, making it the most fiscally stable state in 2022-23. Chhattisgarh and Goa demonstrated balanced fiscal strategies, with Goa leading in revenue mobilisation efficiency.
The report notes that Punjab, Kerala, and Andhra Pradesh faced significant fiscal stress, attributed to high debt levels and low revenue generation.
Why is FHI important? States are primary agents for implementing infrastructure projects such as roads, bridges, industrial parks, and power generation facilities. A fiscally sound state can invest more in infrastructure, which is key to fostering economic growth and attracting private investment.
States are responsible for education, healthcare, sanitation, and other social services. Strong fiscal health ensures better resource allocation for these sectors, directly impacting human capital and long-term growth.
Sound fiscal management can offer better incentives to industries and maintain competitive tax regimes, making them more attractive for both domestic and foreign investment.
A financially healthy state can better engage with the central government in development programmes. Strong state finances reduce dependency on central grants, allowing for a more decentralized and efficient economic governance model.
States with good fiscal health can manage their debt levels better, keeping interest payments manageable. This ensures more resources are available for developmental spending rather than debt servicing.
Unsustainable state finances can contribute to fiscal imbalances, leading to inflationary pressures, higher interest rates, and lower private investments. Maintaining fiscal prudence is essential for national macroeconomic stability.
States that manage their finances well can optimise spending and implement policies efficiently, leading to higher growth multipliers for every rupee spent.
Many states are crafting special policies to support startups and new industries. Fiscally strong states can offer grants, tax holidays, and other incentives to stimulate innovation and entrepreneurship.
With adequate financial resources, states can implement skill development and employment generation schemes, contributing to job creation and poverty reduction.
Financially sound states are better equipped to handle economic crises, natural disasters, and other shocks without disrupting their developmental agendas.
