NITI Aayog Report Reveals Stark Fiscal Divergence Among Northern States
Chandigarh: The latest Fiscal Health Index (FHI) for 2023–24, released by NITI Aayog, paints a concerning economic landscape for the region, with Punjab emerging as the most fiscally stressed among 18 major states. Himachal Pradesh grapples with mounting structural pressures, while Haryana demonstrates relatively moderate fiscal stability, highlighting a tale of three states with divergent financial trajectories.
Punjab's Fiscal Profile: A Cautionary Tale of Rising Liabilities
Punjab's fiscal health is under severe strain, ranking last with an FHI score of 12.4, reflecting weak fiscal prudence, high debt burdens, and limited public finance flexibility. Despite substantial investments in infrastructure, agriculture, education, and welfare programs, the state's revenue is heavily consumed by committed expenditures such as salaries, pensions, and interest payments. This leaves minimal fiscal space for new developmental initiatives.
Total developmental expenditure in Punjab increased by approximately 19.6%, from Rs 0.51 lakh crore in 2019–20 to Rs 0.61 lakh crore in 2023–24. Social services accounted for 27% and economic services for 21% of this spending. Capital expenditure was higher in economic services (46%) and social services (45%), with major investments directed toward agriculture, rural development, irrigation, energy, transport, education, health, and welfare for vulnerable groups.
However, fiscal pressures remain acute. The share of committed expenditure in revenue receipts averaged around 78% from 2019 to 2024, indicating constrained flexibility. Although it dipped from 81% in 2019–20 to 74% in 2021–22, it rebounded to 80% in 2023–24 due to increased outlays on salaries, pensions, and interest payments.
Revenue receipts grew by 44.8%, from Rs 61,575 crore in 2019–20 to Rs 89,192 crore in 2023–24, driven largely by a 67.8% surge in tax revenues. Non-tax revenue and grants-in-aid saw marginal increases of 8.7% and 2.8%, respectively.
Deficit trends underscore persistent imbalances. The revenue deficit expanded from Rs 5,307 crore in 2019–20 to Rs 11,738 crore in 2022–23 before moderating to Rs 8,295 crore in 2023–24. The fiscal deficit peaked at Rs 30,452 crore (4.18% of GSDP) in 2022–23, exceeding the normative 3% threshold. Total liabilities soared by 55% over five years, from Rs 2.29 lakh crore in 2019–20 to Rs 3.55 lakh crore in 2023–24.
Haryana's Fiscal Position: Gradual Consolidation Amid Constraints
Haryana's fiscal outlook shows signs of gradual consolidation, supported by enhanced tax revenues, particularly from commercial taxes. The state ranked 11th with an FHI score of 34.5, indicating moderate stability. However, expenditure flexibility remains limited.
In 2023–24, committed and inflexible expenditure constituted about 62% of revenue expenditure, curtailing room for development or capital projects. Revenue expenditure dominated overall spending, accounting for 82–93% of total expenditure between 2019 and 2024.
While revenue expenditure increased by 33.41% from 2019–20 to 2023–24, capital expenditure declined by 9.88% during the same period, signaling reduced asset creation. Revenue receipts grew by 13.6% in 2023–24, with the state's own tax revenue rising 15.2% and total tax revenue up 15.7%, buoyed by commercial taxes.
Own tax revenue surged by 69.32% in 2023–24 compared to 2019–20, and non-tax revenue increased by 9.50% over the same span. The revenue deficit fell by approximately 31% to ₹11,881 crore, and the fiscal deficit stayed within the FRBM target at 2.87% of GSDP. Haryana's debt-to-GSDP ratio improved from 32.7% in 2020–21 to 29.8% in 2023–24, though it remains above long-term targets.
Himachal Pradesh: Structural Pressures Intensify in Hill State
Himachal Pradesh, ranked 9th among Himalayan and north-eastern states with an FHI score of 22.0, faces escalating structural pressures. Historically known for revenue surpluses, the state has recently shifted toward revenue deficits, indicating that borrowings are increasingly used for recurring obligations rather than developmental investments.
The composition of spending has altered notably. The share of general services increased from 34.48% in 2019–20 to 38.64% in 2023–24, while economic services declined from 27.64% to 23.36%, reflecting reduced allocations to growth-oriented investments.
Revenue expenditure rose by 45.56% between 2019 and 2024, driven by pension liabilities under the Old Pension Scheme, higher interest payments on market loans, and increased spending on disaster relief. Committed expenditure accounted for 64–70% of revenue expenditure during this period.
Revenue receipts increased by 27.42% from 2019–20 to 2023–24. Own tax revenue and non-tax revenue grew by 11.70% and 5.03%, respectively, in 2023–24 compared to the previous year. The average growth rate of own tax revenue over the past five years was 9.53%, while non-tax revenue averaged only 2.08% growth.
Declining grants-in-aid added fiscal pressure, with reductions of 4.23% in 2021–22, 5.10% in 2022–23, and 10.71% in 2023–24 over prior years. Deficit indicators highlight stress: the revenue deficit stood at 3.30% of GSDP in 2022–23 and 2.68% in 2023–24, while the fiscal deficit was 6.46% and 5.43%, respectively. The state's debt-to-GSDP ratio climbed from 39.09% in 2019–20 to 43.98% in 2023–24.
Fiscal Health Index Scorecard: A Comparative Overview
Major States:
- Punjab: FHI Score 12.4, Rank 18, Quality of Expenditure 8.1, Revenue Mobilisation 29.8, Fiscal Prudence 5.9, Debt Index 2.1, Debt Sustainability 15.9
- Haryana: FHI Score 34.5, Rank 11, Quality of Expenditure 35.8, Revenue Mobilisation 48.0, Fiscal Prudence 27.3, Debt Index 32.8, Debt Sustainability 28.7
North-Eastern/Himalayan States:
- Himachal Pradesh: FHI Score 22.0, Rank 9, Quality of Expenditure 13.2, Revenue Mobilisation 64.2, Fiscal Prudence 3.0, Debt Index 24.9, Debt Sustainability 4.6
This comprehensive analysis underscores the urgent need for fiscal reforms and strategic planning to address the varying degrees of economic stress across these states, ensuring sustainable development and financial resilience in the region.
