Explained: Magnitude, causes, and impact of Himachal’s financial crisis

The Sukhvinder Singh Sukhu government in Himachal Pradesh is in trouble again, this time facing a crisis of a financial nature. So much so that the Cabinet recently decided to defer the salaries of the members, as well as of the Chief Parliamentary Secretaries, for two months.

As expected, the decision has sparked off a political slugfest, with Sukhu blaming his predecessor Jai Ram Thakur’s BJP government and the NDA-led Centre for the financial crisis, while the BJP has put the blame on “financial mismanagement” by the Congress-led state government.

Even though Sukhu has played down the crisis as a “temporary hurdle”, here is an estimate of how big it is and what steps his government is taking to mitigate it.

How big is Himachal’s debt?

The state’s total debt now approaches Rs 90,000 crore. Currently, it stands at around Rs 86,589 crore, and is reportedly expected to reach Rs 1 trillion by the next financial year.

The state’s debt reportedly surged from Rs 47,906 crore in 2018 to Rs 76,651 crore in 2023.

The per capita debt in Himachal, which has a population of around 77.56 lakh, stands at Rs 1.17 lakh per head, second only to Arunachal Pradesh.

Budgetary math

Himachal has set an expenditure target of Rs 52,965 crore in the 2024-2025 Budget. However, that excludes debt repayment. Receipts (excluding borrowings) have been pegged at Rs 42,181 crore and net borrowings at Rs 7,340 crore. Of the expenses, Rs 20,639 crore is expected to go on salaries, pensions, and interest payments.

Sukhu, in a written reply to the Assembly, has also clarified that the state has borrowed Rs 21,366 crore over the past three financial years. Of that, Rs 5,864 has been repaid, while another Rs 2,810 crore has been borrowed from the Department of Pension and Pensioners’ Welfare.

What caused the crisis?

There are multiple reasons behind the current crisis. First, the state borrowed excessively, which was exacerbated by expenses related to electoral sops, reduced central grants, and insufficient revenue generation.

Among the five election promises made by the Congress, paying Rs 1,500 to 5 lakh women aged between 18 and 60 every month will cost the state exchequer around Rs 800 crore annually. Added to that is the promise of free power supply, which has now been limited to certain sections.

The revival of the Old Pension Scheme (OPS) also cost the state Rs 1,000 crore per year. The state has over 189,466 pensioners, a figure that is expected to go up to 238,827 by 2030-31. The annual pension burden will also go up by nearly Rs 20,000 crore.

A host of subsidies offered by the previous BJP dispensation also burdened the state exchequer. Those are now being reviewed by the government.

Reduced borrowings

Sukhu has said in the Assembly that the Centre has reduced the state’s Revenue Deficit Grant for FY24 by Rs 1,800 crore. The amount, now at Rs 6,258 crore, is expected to further slip to Rs 3,257 crore in the next fiscal.

The state’s borrowing limit has also been slashed by Rs 5,500 crore. While the state could so far borrow up to 5 per cent of its GDP, now only 3.5 per cent is allowed.

From Rs 14,500 crore, the state’s borrowing capacity has now reportedly come down to Rs 9,000 crore.

Sukhu has also claimed that the re-introduction of the OPS has decreased the state’s borrowing capacity by around Rs 2,000 crore.

Besides, the Congress government has accused the Centre of withholding Rs 9,042 crore in Post-Disaster Needs Assessment (PDNA) funds, and Rs 9,200 crore in National Pension System funds from the Pension Fund Regulatory and Development Authority (PFRDA).

Blame on BJP

Sukhu has blamed the previous BJP government headed by Jai Ram Thakur for the crisis.

During his Independence Day speech, Sukhu claimed the Thakur government burdened the state exchequer by Rs 1,080 crore by providing free water and electricity.

He has also accused the BJP government of mismanaging Rs 10,000 crore the state got as Revenue Deficit Grant under the 15th Finance Commission.

At the same time, Sukhu has accused the previous BJP government of compromising the interest of the state and its people by allowing private players to set up hydro-electric projects.

What BJP says

The BJP has launched a counter-attack on the Sukhu government, saying it came to power on false promises.

Jai Ram Thakur, now the Leader of Opposition in the Assembly, accused the Sukhu government of delaying the release of salaries and pensions despite borrowing from the Pensioners’ Welfare Fund.

He has also claimed that after deferring Cabinet members’ salaries, Sukhu will ask government employees to do the same after a month.

Thakur also alleged that the government has increased the burden on the state exchequer by giving Cabinet ranks to seven persons, of whom four are not even elected MLAs. Furthermore, six MLAs have been made Chief Parliamentary Secretaries.

“The Congress had promised 300 units of free electricity but now has taken away the subsidy on 125 units. The government has no money to release pending DA and other allowances of government employees,” Thakur said.

What Sukhu government is doing to tackle the crisis

The Himachal government has already discontinued the power subsidy for taxpayers. Now, only BPL (below poverty line) families, those under the Integrated Rural Development Programme (IRDP), and weaker sections will receive the subsidy, which cost the state electricity board Rs 1,800 crore in FY24.

This should save some Rs 200 crore.

Sukhu has also announced that many of the subsidies introduced by the previous BJP government would be reviewed. The government has already started reversing some.

Fourteen subsidies benefiting commercial establishments such as hotels are likely to be reviewed and rationalised. Water charges will now be collected from commercial establishments, private institutions, and homestays in rural areas. Subsidised electricity for hotel owners will be revoked.

Just before the November 2022 Assembly elections, the BJP government announced free bus travel on 3,000 state roadways buses. The Congress government will now provide a 50 per cent bus fare subsidy for women, Sukhu has said.