The majestic Vidhana Soudha in Bengaluru, Karnataka.
The inaugural issue of NITI Aayog’s report titled “Fiscal Health Index (FHI) 2025”was released on 25 January 2025. The report assesses five key sub-indices aggregated to form the Fiscal Health Index. They are as follows:
The fiscal health of 18 major states receives a thorough assessment in the report. In addition, the report offers insights into the unique challenges and potential improvements in each state. In this article, we are going to look at only the Fiscal Prudence of Southern States.
Ranking and comparison among southern states
The following table shows all the five sub-indices for all the five (5) southern states. All the tables below are extracts from the FHI Report, 2025, of NITI Aayog.
From the table above (see 1a & 1b), it is visible that Karnataka has done well in almost all the parameters of the Fiscal Health Index (except Revenue mobilisation, where Telangana fared better than all).
Since we take only the fiscal prudence parameter, as it is one of the best indicators of the finances of a state government, Karnataka has topped all the southern states. This includes Andhra Pradesh and Tamil Nadu.
The report showcases State-wise FHI Rank and Score Comparison for 2022-23 versus average for 2014-15 to 2021-22 and average for 2014-15 to 2018-19.
To compute the state ranking, the rank average is mentioned as the All India Rank average and the Southern State Rank is mentioned on the left side of the table.
Table 2 showcases the Rank Average from 2014-15 to 2018-19, from which one can clearly see that Karnataka not only tops southern states but also ranks third (3rd) in the All India category.
Telangana and Tamil Nadu rank second (2nd) and third (3rd) respectively, while Kerala and Andhra Pradesh took fourth (4th) and fifth (5th) spot respectively.
Table 3 showcases the Rank Average from 2014-15 to 2021-22, which again clearly shows that Karnataka not only tops southern states but also ranks third in the All India category. Telangana and Tamil Nadu rank second and third respectively.
Table 4 showcases the rank of Fiscal Prudence, 2022-23, where Karnataka still tops the southern states, while Telangana and Kerala rank second and third respectively. However, Karnataka declined from All India’s third rank to Tenth rank.
Conclusion
Without any doubt, Karnataka leads the southern states in Fiscal Prudence. However, in 2022-23, in the All India ranking, the State’s rank declined from third to tenth. The reason for this, however, has to be analysed.
On a deeper data analysis, it is found that Karnataka has done well in all the parameters of the Fiscal Health Index, except for Revenue Mobilisation. This impacted the state’s score in 2022-23, where its quality of expenditure declined from 54.5% (Average for 2014-15 to 2018-19) to 47.4% and its fiscal prudence score increased from 31.1% to 43.9%.
Therefore, it is time for Karnataka to revise its expenditure pattern and increase its revenue mobilisation.
By doing so, it will not only lead southern states but can be a greater example for all states in India.
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