Introduction

The financial health of Indian states is not just about budget numbers and revenue–expenditure balance. It reflects governance capacity, sustainability of development programs, and the state’s ability to deliver economic and social justice. In UPSC and State PSC exams, the topic “Fiscal Health of States” is important under economy, federal relations, public finance, and policy issues.

Major Points

1. Revenue Sources and Dependence

  • Own Revenue: How much states earn through their own taxes and non-tax revenue (State GST, excise, economic activities, etc.).
  • Dependence on Centre: Grants, financial transfers, and inter-governmental support from the Union government.

2. Expenditure Pattern

  • Developmental Expenditure: Spending on education, health, infrastructure.
  • Non-developmental/Recurring Expenditure: Salaries, pensions, administrative costs.
  • Debt Servicing: Rising burden of interest and loan repayment creating fiscal stress.

3. Revenue Deficit and Fiscal Deficit

  • Ability of states to maintain a balanced budget.
  • Financing methods for deficits (borrowing, central assistance).
  • Impact of revenue deficit vs fiscal deficit on fiscal stability.

4. Debt Levels and Sustainability

  • Total debt and per-capita debt of state governments.
  • Impact of high debt burden on long-term economic growth.
  • Issues of debt repayment pressure and sustainability.

5. Monitoring and Reform Measures

  • FRBM Acts: Role of Fiscal Responsibility and Budget Management laws in states.
  • Revenue Augmentation: Expanding tax base, reducing tax evasion and leakages.
  • Expenditure Management: Setting clear priorities, curbing wasteful expenditure, promoting PPP models.

6. Case Study: Post-COVID Impact

  • Revenue fall due to lockdowns and slowdown.
  • Expenditure rise in health and relief measures.
  • Recovery measures: central support, emphasis on capital expenditure.

UPSC/PSC Exam Relevance

Possible Questions:

  1. “What policy measures are required to improve the fiscal health of Indian states?”
  2. “Discuss the pros and cons of rising debt burdens on states.”
  3. “Differentiate between revenue deficit and fiscal deficit. Suggest measures to control them.”

Answer-Writing Tips:

  • Start with the definition of “Fiscal Health.”
  • Cover revenue, expenditure, debt, deficits in the main body.
  • Use state-specific examples (Kerala, Maharashtra, Uttar Pradesh, etc.) to show comparative management.
  • Conclude with balanced reforms and the role of cooperative federalism.

Conclusion

Improving the fiscal health of Indian states is not only an economic requirement but also essential for social welfare, good governance, and long-term development. For UPSC/PSC, mastering this topic with data, reports, and reform perspectives ensures better performance in exam answers.