THIRUVANANTHAPURAM: Kerala has been ranked among the worst performers in the recently released Niti Aayog’s “Fiscal Health Index 2025”. With a 25.4 FHI score, Kerala was ranked 15th among 18 major states for the period 2022-23. The silver lining is that Kerala improved its position from 16th rank in the average FHI score for 2014-15 to 2021-22.
Odisha came first with an FHI score of 67.8, followed by Chhattisgarh (55.2) and Goa (53.6). On the basis of their scores, the report categorised states into four categories - achiever, frontrunner, performer and aspirational. Besides Kerala, the aspirational states West Bengal, Andhra Pradesh and Punjab face significant fiscal challenges, according to the report.
“Kerala and Punjab struggle with low Quality of Expenditure and Debt Sustainability, while West Bengal faces Revenue Mobilisation and Debt Index issues,” it said.
The composite FHI score was calculated from five major sub-indices - Quality of Expenditure, Revenue Mobilisation, Fiscal Prudence, Debt Index and Debt Sustainability.
Among the sub-indices, Kerala fared well only in Revenue Mobilisation and was placed in the frontrunner category. The state ranked sixth with a score of 54.2. According to the report, in 2022-23, the state’s own-revenues recorded a YoY growth rate of 26.5% and a Compound Annual Growth Rate (CAGR) of 7.3% in the last five years, the report said. Own Tax Revenues increased by 23.3% and Own Non-Tax Revenue (SONTR) reflected a substantial YoY growth rate of 44.5% and a CAGR of 5% in last 5 years.
The frontrunner listing comes as a relief to the state government which took a slew of initiatives, including the reorganisation of the State GST department resulting in a significant improvement in overall tax collection.
Kerala’s score in Quality of Expenditure was 4.2, lowest among all states. In 2022-23, capital expenditure was 8.8% of total expenditure, lower than the 15.2% average of comparable states. The allocation for health and family welfare was 6.4%, higher than the average of 5.6% of other major states. The 14% spending for education was close to the average of 14.9% of other major states.
At 11th position, Kerala’s score in fiscal prudence was 34. As a percentage of GSDP, Revenue Deficit decreased from 3.3% in 2021-22 to 0.9% in 2022-23. Fiscal Deficit as a proportion of GSDP decreased from 5% in 2021-22 to 2.5% in 2022-23. Still, the relatively higher score reveals that the state’s borrowings are disproportionate to its economic size.
The score and rank in the Debt Index was 23.1 and 16 respectively. The score and rank for Debt Sustainability was 11.3 and 15.
The percentage of total liabilities to GSDP was 37.6 in 2022-23. Kerala’s substantial expenditure on social programmes, difficulties in enhancing revenue mobilisation and improving tax collections have exacerbated fiscal pressures, the report said.