Explained: Why Himachal Pradesh is reeling under a financial crisis

"After discussing in the Cabinet, all members decided that till the state sees improvement... we will not take salary, TA or DA (Transport or Dearness Allowance) for two months. This is just a small amount... but it is symbolic. Apart from this, I also requested all the MLAs..." the chief ministers told mediapersons on Thursday ( August 29). Terming the move ‘symbolic’, the chief minister said the initiative will be pivotal in beginning a culture of financial prudence in the state.

BJP-led opposition were quick to attack the Sukhu government alleging that hill state is turning out to be another state proving the Congress government's fiscal failure. The chief minister had communicated the decision to the Assembly on Thursday during the ongoing Monsoon session.

How a series of steps culminated in Thursday’s decision

In the run-up to the big decision on Thursday, the hill state over the past few months had taken a series of steps to improve its financial condition.  The cash-strapped state government had come down hard at consumers by discontinuing the power subsidy scheme — providing 125 units of free electricity to all households — for all consumers falling under the tax-paying group.

While speaking about the cabinet decision, industries minister Harshwardhan Chauhan said the electricity board did not have money to pay salaries to the employees and that the government also has to pay the liabilities of the subsidy given on electricity by the previous government.

Calamity-battered economy 

The calamity-battered economy, derailed by the havoc wreaked in the last monsoons, is yet to recover as the infrastructure like roads and bridges have still not been permanently restored in the absence of funds. The state is awaiting the grant of Rs 9,040 crore from the Centre, based on the Post Disaster Need Assessment after the last year’s unprecedented rain.

The state is reeling under the adverse impact of flash floods and landslides over the past several months. The landslides and flash floods also meant 280 roads had to be closed - affecting tourism, a key revenue driver for the state - and water and electricity supply was either fully or partially affected.

A ‘bad’ inheritance

The Congress-led Himachal Pradesh government had inherited the total direct liabilities of Rs 92,774 crore from the previous BJP government, according to a White Paper on state finance. They consist a debt of Rs 76,630 crore, other outstanding liabilities of Rs 5,544 crore in Public Account and about Rs 10,600 crore on account of pay revision and dearness allowance (DA) till December 2022.

The debt liability at the end of fiscal 2017-18 was Rs 47,906 crore, which increased by Rs 28,724 crore from 2018 to 2023 and reached Rs 76,630 crore at the end of 2022-23, says the paper laid by deputy chief minister Mukesh Agnihotri, the Chairman on the Cabinet sub-committee on preparing White Paper.

How higher pension outgo has burdened the exchequer

Himachal Pradesh, in its Budget for 2024-25 (April-May), has revised the estimate of expenditure towards pension in the next fiscal year to 102.44 billion rupees, up 10 per cent from the revised estimate of 93.18 billion rupees for the current fiscal. This comes on the back of the state's decision to switch to the old pension scheme, which is costlier. The chief minister, categorically stated that restoring the old pension scheme - an election promise by the ruling Congress - had increased expenditure by Rs 2,000 crore.

The Himalayan state’s efforts in recent year to restructure and rationalise its spends by reducing the burden of committed expenditure (salaries, pension and Interest) had brought down Himachal’s committed expenditure from 80% of total revenue expenditure in FY13 to 61% in FY22. However, it is still one of the highest among states.