QUESTION 11
GS3
15 marks
Explain how the Fiscal Health Index (FHI) can be used as a tool for assessing the fiscal performance of states in India. In what way would it encourage the states to adopt prudent and sustainable fiscal policies?
WRITE IN
11 min
250 words
What the examiner wants
Explain how NITI Aayog's Fiscal Health Index assesses state finances and how it can push states towards prudent policies.
ExplainMake clear how and why it happens: causes, process, and an example for each point.
Demand-wise check
- 1FHI (first edition, January 2025): five sub-indices — quality of expenditure, revenue mobilisation, fiscal prudence, debt index, debt sustainability; 18 major states≈65 words
- 2Use as a tool: benchmarking, identifying weaknesses, transparency for markets and citizens≈65 words
- 3Incentives: competitive federalism, borrowing terms, Finance Commission and market signals; limits (data lags, off-budget borrowing)≈65 words
Open in about 30 words and close in about 30.
Answer plan
What FHI isIndicatorsUse for assessmentIncentivesLimitsConclusion
Where marks usually go
- Not naming the sub-indices
- No example of a top or bottom state
Draw this
- Bar chart of top and bottom states
Value addition
- ReportNITI Aayog's Fiscal Health Index 2025 ranked Odisha first; Punjab, Andhra Pradesh and West Bengal were among the lowest.NITI Aayog, Fiscal Health Index 2025
- LawFRBM laws in states cap fiscal deficit generally at 3% of GSDP, with additional room linked to reforms.State FRBM Acts / Finance Commission
Mapped topper copies
Reviewed public-source references related to this PYQ. Same-syllabus references are labelled separately.
- Mayank Purohit · AIR 33 · Page 3 ↗Same syllabus reference
- Shakti Dubey · AIR 1 · Page 23 ↗Same syllabus reference
- Aniket Ranjan · AIR 48 · Page 26 ↗Same syllabus reference
- Mayank Purohit · AIR 33 · Page 13 ↗Same syllabus reference
Links open original public sources. MainsBuddy does not host these answer sheets.
Next: plan for one minute, write it in 11 minutes, then get it checked.