Fiscal Health Index 2025 published by the NITI Aayog provides a comprehensive assessment of fiscal health of 18 major States based on which of the following key sub-indices ? 1. Quality of expenditure 2. Debt index 3. Debt sustainability 4. Fiscal prudence 5. Revenue mobilisation Select the answer using the codes given below :
- (a)1, 3 and 5 only
- (b)2 and 4 only
- (c)2, 4 and 5 only
- (d)1, 2, 3, 4 and 5
Answer
Why
Correct — D, (d) 1, 2, 3, 4 and 5.
The Fiscal Health Index is built on exactly five sub-indices, and the item lists all five of them: quality of expenditure, debt index, debt sustainability, fiscal prudence and revenue mobilisation. Every entry belongs, so the answer is the option that names them all.
The Index is NITI Aayog's assessment of the fiscal position of the eighteen major States. Its inaugural edition, the Fiscal Health Index 2025, was released in New Delhi on 24 January 2025 by Dr Arvind Panagariya, Chairman of the Sixteenth Finance Commission, in the presence of the Vice Chairman and a Member of NITI Aayog, and it presents its main results for 2022-23. Odisha led the ranking, followed by Chhattisgarh, Goa, Jharkhand and Gujarat.
What each sub-index measures is worth stating, because it explains why five are needed rather than one.
Quality of expenditure looks at the composition of spending - how much goes to capital and developmental purposes against routine and non-developmental ones - on the view that two States spending the same amount are not in the same fiscal condition if one is building assets and the other is not.
Revenue mobilisation measures a State's ability to raise its own revenue and so to meet its expenditure without depending on transfers.
Fiscal prudence covers the conduct of the budget - the size and financing of the deficit, and adherence to the fiscal rules.
Debt index measures the stock of debt relative to the size of the economy.
Debt sustainability asks the forward-looking question of whether that stock can be serviced on present trends, which is a different matter from how large it is today.
The last two are printed as separate entries in the question, and a candidate who treats them as one and the same will look for an option with four entries and not find it.
Why the others are wrong
- (a)1, 3 and 5 only — This option keeps quality of expenditure, debt sustainability and revenue mobilisation and drops the debt index and fiscal prudence. Both of the dropped entries are genuine sub-indices, and dropping the debt index in particular leaves the framework without any measure of the stock of debt, retaining only the forward-looking question of whether it can be serviced. The two are related and distinct: a State may carry a heavy debt burden that is nonetheless sustainable on present revenue trends, and another may carry a modest one that is not.
- (b)2 and 4 only — This option names only the debt index and fiscal prudence, discarding three of the five. It reduces the Index to a measure of borrowing and budgetary conduct, which is how a fiscal assessment used to be framed before the composition and adequacy of revenue were brought into it. The framework's whole point is that fiscal health has an expenditure side and a revenue side as well as a debt side, and an option confined to debt and deficit misses two-thirds of it.
- (c)2, 4 and 5 only — This option is the most plausible of the three wrong ones, since it names three real sub-indices - debt index, fiscal prudence and revenue mobilisation - and omits only quality of expenditure and debt sustainability. What it loses is the pair that makes the Index more than a conventional deficit-and-debt scorecard. Quality of expenditure is the sub-index that distinguishes capital and developmental spending from routine spending, and debt sustainability is the one that asks whether the debt stock is serviceable on present trends. A candidate who has heard of the Index but not read its structure will very often produce a list of exactly this shape.
Concept
State finances are a permanent subject in the economy section of these papers, and the Fiscal Health Index is the newest instrument for describing them.
Why an index rather than a single number. The conventional measures - the fiscal deficit as a proportion of gross State domestic product, the debt-to-GSDP ratio - capture the flow and the stock of borrowing and nothing else. They say nothing about whether spending is building assets or meeting salaries and interest, nothing about whether a State raises its own revenue or depends on transfers, and nothing about whether the debt can be carried forward. The Index answers those questions through separate sub-indices and then combines them.
The five sub-indices, with what each is for: quality of expenditure, on the composition of spending; revenue mobilisation, on own-revenue capacity; fiscal prudence, on deficits and their financing; debt index, on the stock of liabilities; and debt sustainability, on the capacity to service them.
The scope: eighteen major States, the group used in most comparative work on State finances because the smaller States and the special-category States have revenue structures that are not comparable. The inaugural edition was released on 24 January 2025 and reported principally on 2022-23, with Odisha at the top followed by Chhattisgarh, Goa, Jharkhand and Gujarat.
The context in which it appeared matters too: the Sixteenth Finance Commission was at work on its recommendations for the award period beginning 2026-27, and an index of State fiscal performance feeds directly into the debate about how transfers should be distributed and what incentives they should carry.
NITI Aayog's indices - on innovation, health, school education, export preparedness, sustainable development goals and now fiscal health - are reliable examination material, and the questions about them follow a pattern: what the index measures, how many components it has, who is covered, and who leads.
This item asks the first two together, by printing a five-entry list where four of the options are subsets. That construction rewards knowing the framework and punishes partial recall, because every wrong option is made of genuine components. There is no way to reason to the answer from general knowledge of public finance; either the five are known or they are not.
The list itself contains one deliberate hazard. Entries 2 and 3 both begin with the word Debt and differ only in the second word, so a hurried reading can collapse them into a single item - and a candidate who does that will conclude that the framework has four components and will look for an option that offers four. None does, which is a useful signal to reread the list rather than to guess.
Key facts
- The Fiscal Health Index is built on five sub-indices: quality of expenditure, revenue mobilisation, fiscal prudence, debt index and debt sustainability.
- The inaugural edition, the Fiscal Health Index 2025, was released by NITI Aayog in New Delhi on 24 January 2025 and assesses the eighteen major States, reporting principally on 2022-23.
- Odisha led the inaugural ranking, followed by Chhattisgarh, Goa, Jharkhand and Gujarat.
- Quality of expenditure measures the composition of spending - capital and developmental against routine and non-developmental - while revenue mobilisation measures a State's capacity to raise its own revenue.
- The debt index measures the stock of liabilities and debt sustainability the capacity to service them on present trends; they are separate sub-indices and are printed as separate entries in the question.
Study next
Common traps
- Reading the two entries beginning with 'Debt' as one, which reduces the framework to four components and leaves no option matching.
- Assuming an index of fiscal health must be built only from deficit and debt measures, which is what the two-entry and three-entry options offer.
- Confusing the number of States covered; the Index assesses the eighteen major States, not all States and Union Territories.
- Attributing the Index to the Finance Commission because its inaugural edition was released by that Commission's Chairman; it is a NITI Aayog publication.
- Treating quality of expenditure as a measure of how much is spent rather than of what it is spent on.
Government indices are set on these papers as list questions - which components, which States, which ministry, which year - and the option sets are built entirely from real components so that partial knowledge produces a wrong answer rather than a blank. The safest preparation is to hold, for each significant index, four facts: the publishing body, the number and names of its components, the universe it covers, and the leader in the latest edition. That set of four answers almost every form the question can take, and it is short enough to be worth maintaining for the eight or ten indices that recur.
Related PYQs
EPFO_APFC_2023_Q58Consider the following statements : 1. The Department of Economic Affairs is a nodal agency of the Government of India to formulate and monitor the country’s economic policies and programmes that have a bearing on the domestic and international aspects of economic management. 2. The principal responsibility of the Department of Economic Affairs is the preparation and presentation of the Union Budget (including the Railway Budget) before the Parliament, and the Budgets for Union Territories and States under the President’s Rule. Which of the statements given above is/are correct?
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Answer(c) Both 1 and 2
A two-statement item on the Department of Economic Affairs and its responsibility for economic policy and the Union Budget - the institutional counterpart to a question about assessing State finances.
EPFO_APFC_2016_Q32How does an expansionary monetary policy affect the rate of interest and level of income ?
- (a) Raises the level of income but lowers the rate of interest
- (b) Raises the rate of interest but lowers the level of income
- (c) Raises both, the rate of interest and the level of income
- (d) Lowers both, the rate of interest and the level of income
Answer(a) Raises the level of income but lowers the rate of interest
Asks how an expansionary monetary policy affects the rate of interest and the level of income, testing macroeconomic reasoning of the kind the fiscal indicators here summarise.
EPFO_APFC_2016_Q53The Rangarajan Committee on disinvestment of shares in Public Sector Enterprises suggested that 1. The percentage of equity to be divested should be no more than 49% for industries explicitly reserved for the public sector and it should be either 74% or 100% for others. 2. Year-wise targets of disinvestment should be maintained. Which of the above statements is/are correct ?
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Answer(a) 1 only
On the Rangarajan Committee's recommendations for disinvestment, another item requiring the specific composition of an official framework rather than its general purpose.
Practice
- practice — not a real PYQ
The Fiscal Health Index published by NITI Aayog assesses the fiscal position of :
- (a)All States and Union Territories with legislatures
- (b)The eighteen major States
- (c)The eight special-category States
- (d)The States and the Union Government together
Answer(b) The eighteen major States - the group conventionally used for comparative work on State finances, because the smaller and special-category States have revenue structures that are not comparable.
- practice — not a real PYQ
Which sub-index of the Fiscal Health Index measures the composition of a State's spending as between developmental and non-developmental purposes ?
- (a)Fiscal prudence
- (b)Revenue mobilisation
- (c)Quality of expenditure
- (d)Debt sustainability
Answer(c) Quality of expenditure - it looks at how much of a State's spending goes to long-term growth and capital formation rather than to routine operations. Fiscal prudence covers deficits and their financing, revenue mobilisation covers own-revenue capacity, and debt sustainability covers the serviceability of the debt stock.