Niti Aayog Asks States to Follow FRBM Deficit Limits and Strengthen Fiscal Discipline

India’s public policy think tank Niti Aayog has advised state governments to maintain fiscal discipline and adhere to deficit limits set under the Fiscal Responsibility and Budget Management (FRBM) Act.  

As per the reports, the recommendation comes in its Fiscal Health Index (FHI) 2026, which evaluates the fiscal performance of states for FY2023-24 and highlights the need for stronger revenue management and expenditure discipline. 

Fiscal Health Rankings Across States 

According to the latest index, the top 10 fiscally strong states are Odisha, Goa, Jharkhand, Gujarat, Maharashtra, Chhattisgarh, Telangana, Uttar Pradesh, Karnataka and Madhya Pradesh. The report also noted mild fiscal recovery in Bihar, Karnataka and Telangana, while Punjab, West Bengal and Kerala remained at the bottom of the rankings. 

Among north-eastern and Himalayan states, Arunachal Pradesh ranked first, followed by Uttarakhand, Tripura, Meghalaya, Assam and Mizoram. In the previous FHI 2025, which assessed fiscal performance for FY2022-23, the top 5 states were Odisha, Chhattisgarh, Goa, Jharkhand and Gujarat. 

Fiscal Framework and Key Recommendations 

The FRBM Act aims to regulate the country’s debt by limiting fiscal and revenue deficits as a proportion of GDP. Niti Aayog stated that states with widening revenue deficits should align their spending with sustainable revenue growth and strengthen fiscal frameworks by broadening the GST base and improving their own tax capacity. 

The report also recommended rationalising subsidies, adopting standard expenditure heads, improving the composition and quality of capital spending, and implementing medium-term fiscal plans. States facing persistent fiscal stress were advised to control off-budget borrowings and strengthen cash and debt management systems. 

Fiscal Health Index Methodology 

The Fiscal Health Index serves as a framework to assess and compare the fiscal performance of states. It measures fiscal strength through five sub-indices: quality of expenditure, revenue mobilisation, fiscal prudence, debt index and debt sustainability.  

The report noted that higher-ranked states generally demonstrate stronger fiscal discipline and better resource mobilisation, while lower-ranked states tend to have higher non-developmental expenditure and weaker fiscal sustainability. 

Niti Aayog Vice Chairman Suman Bery, while releasing the report, said “maintaining strong fiscal health helps create a buffer when shocks hit, whether those shocks are international or domestic.” 

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Conclusion 

The Fiscal Health Index highlights the importance of disciplined spending, stronger revenue mobilisation and prudent debt management for states to maintain stable public finances under the FRBM framework. 

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