Shimla: Himachal Pradesh Chief Minister Sukhvinder Singh Sukhu Thursday informed the state assembly that he was suspending his own salary and that of the cabinet ministers and chief parliamentary secretaries (CPS) for two months in an attempt to improve the state’s fiscal health.
“We are trying to reduce unproductive expenditure to improve the state’s fiscal health,” Sukhu said in the assembly. “Hence, I want to inform the House that I am suspending mine and state ministers’ and CPS’ salary allowances for two months. I request all the MLAs to (also) do so.”
An analysis by ThePrint has, however, found that the state is in a deep fiscal hole and that such measures are likely to be too small to make any difference.
The Congress government led by Sukhu is facing a tough time as the hill state faces a financial crunch and government employees are agitating for the payment of pending allowances worth crores. The mounting debt burden and limited revenue sources have worsened the situation.
The employees’ protest, which was started by Secretariat staff, has got support from other employees, pensioners’ association and unemployed youths. The employees have been demanding dearness allowance arrears pending since January 2022—amounting to Rs 1,500 crore, comprising three instalments.
The fiscal issues facing Himachal are varied. Besides high debt, the potential financial burden of reinstating the Old Pension Scheme (OPS) also looms, especially as the state awaits a refund from the Centre of Rs 9,000 crore that the Himachal government has deposited in the National Pension System (NPS).
In addition, last year’s monsoon caused massive devastation across the state, when more than 500 people reportedly lost their lives and over 12,000 houses were damaged. The state has been asking for a special relief package for the estimated loss of around Rs 10,000 crore.
“Our demands are justified. Three instalments (of arrears) have been pending since 2022,” Secretariat Employees’ Association president Sanjeev Sharma told ThePrint. “The government should at least pay one of Rs 500 crore so that employees get some relief. But the irony is that the government shows empty coffers to us while spending crores on office and house renovations.”
Besides the dearness allowance arrears, other dues worth around Rs 10,000 crore are pending for the period 2016-2022, according to an officer from the state finance department.
The first employees’ protest was held on 17 August in the Secretariat compound, where the employee leaders fired a salvo at the CM, ministers and civil servants, targeting their hefty salaries and allowances and the spending on offices and their official residences.
The employees were further enraged following state technical education minister Rajesh Dharmani’s statement to the media that the Himachal government does not have a currency printing machine. The employee unions have now given two weeks to the government to decide on their demands.
This is the first uprising of employees against the current dispensation. The Congress wrested power from the erstwhile Bharatiya Janata Party (BJP) government in Himachal in 2022 on the back of several guarantees — principally, that of reinstating the OPS.
However, a state government official told ThePrint that some senior civil servants have suggested that the government rethink the decision to reinstate the OPS so as to improve Himachal’s fiscal health.
This proposal has further fuelled the anger of the agitating government employees.
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State’s finances in the red, worsened by rain
Himachal Pradesh’s financial documents show that it is facing critical financial distress.
The state’s debt to gross state domestic product (GSDP) ratio in 2021-22 was 41.02 percent, which rose to 44.31 percent in 2023-24, according to the budget document for 2024-2025.
Apart from mounting debt, rising salary and pension bills have been worrying the state government.
The state’s salary bill alone is one-fourth of its total budget, while nearly Rs 10,000 crore is the estimated expenditure on pensions for the current fiscal. The state has been urging the Centre to return Rs 9,000 crore deposited with it as a share of the NPS, as the state has reinstated OPS.
Besides, Himachal Pradesh is also pleading its case for a special package due to the monsoon devastation last year.
Revenue minister Jagat Singh Negi told ThePrint that the Himachal government has been facing an unprecedented crisis.
“Monsoons led to massive devastation last year and the loss assessed by the central agencies was around Rs 10,000 crore,” he said. “But the state got nothing from the Centre in terms of the relief package. We had to spend from our limited resources, which also impacted state coffers adversely.”
“The Congress government is not against employees. We have reinstated the OPS. Dearness allowance and other arrears are the right of employees and they will get it,” he asserted.
In 2022, the assembly election year, the Himachal government released Rs 50,000 to each employee while the remaining dues are still pending.
Little support from Centre
Himachal’s fiscal crunch has also meant that the state is unable to increase its spending on growth and revenue-generating activities.
According to the budget document for 2024-2025, total expenditure (excluding debt repayment) for the current fiscal is estimated at around Rs 52,965 crore, which is about the same as the revised estimate for 2023-2024.
As far as the state’s revenue is concerned, the revenue receipts for 2024-2025 are estimated to be Rs 42,153 crore, including Rs 18,741 crore (44 percent) through its own resources, and Rs 23,412 crore (56 percent) from the Centre, highlighting the state’s dependence on the central government.
That said, the state has been marginally successful in increasing the quantum of revenue it generates from its own resources. Its own tax revenue stood at Rs 16,094 crore in 2023-2024 and Rs 13,471 crore in 2022-23, according to the budget documents.
In 2024-25, Himachal Pradesh’s share in central taxes is estimated at Rs 10,124 crore, slightly higher than that of 2023-2024 (Rs 9,167 crore). The share was Rs 7,851 crore in 2022-23.
Another major source of the state’s revenue—central grants—has been shrinking, too.
Central grants to Himachal Pradesh stood at Rs 13,287 crore for 2024-2025, down from Rs 15,185 crore in 2023-2024 and Rs 16,734 crore in 2022-2023.
The state has projected a fiscal deficit of 4.7 percent of GSDP for 2024-2025, which, though higher than the 3 percent target mandated by the 15th Finance Commission, is lower than the previous year’s fiscal deficit of 5.9 percent, according to the revised estimates.
However, the recent fiscal history of the state shows that it has substantially missed its budgeted estimate for the fiscal deficit for the past two years. The fiscal deficit for 2023-2024 was targeted at 4.6 percent of GSDP, but was revised to 5.9 percent. Similarly, the budget estimate for 2022-2023 was 5 percent, but was revised upwards to 6.4 percent.
Revenue generation measures falling short
The Himachal Pradesh government has taken some measures to generate revenue and rationalise expenditure by charging a cess on liquor, increasing royalty from power projects, imposing a water cess, reducing electricity bill subsidies, doing away with free water supply in rural areas, and demanding arrears from the Bhakra Beas Management Board (BBMB).
However, not all of them have yielded results.
Himachal is receiving just about Rs 100 crore from its cess on liquor. In addition, the state had decided to impose a water cess and raise around Rs 2,000 crore per annum, but the move was halted by the high court, which scrapped the cess.
The government has also rationalised the free power scheme in the state.
The previous BJP-led government in Himachal had rolled out a scheme where 125 units of power were provided free for all, but the current Congress-led dispensation has now issued an order to limit it to “needy” people and is expecting to save Rs 200 crore annually this way. However, the government is yet to implement this order.
The state has also been demanding outstanding arrears worth Rs 4,500 crore from the BBMB for a while now, but the issue is still pending despite the Supreme Court’s order for payment.
The Himachal government had also proposed hiking its royalties from central power projects to 18 percent from 12 percent, but the proposal was rejected by the Centre as the Hydro Power Policy of 2008 allows a maximum free power royalty of 12 percent for hydroelectric projects.
Making matters worse
Another blow to the state came from the Himachal Pradesh High Court, which ruled in favour of petitioners in five cases related to arrears from the pay commission, payments to daily wage earners, pensions during contractual periods and seniority post-contract. The court has directed the state to ensure the dues, worth crores, are paid.
In addition, the 15th Finance Commission’s recommendations have seen Himachal Pradesh’s borrowing limit substantially trimmed to 3.5 percent of GSDP from the previous limit of 5 percent. This, however, is a limitation applicable to all states and not just Himachal Pradesh.
“Himachal Pradesh’s borrowing capacity has come down to Rs 9,000 from Rs 14,500 crore annually,” a government official told ThePrint.
Still other factor shrinking the state’s resources is the fact that the 15th Finance Commission had recommended Rs 37,199 crore as a revenue deficit grant (RDG) for the state, which is around Rs 3,400 crore less than that recommended by the 14th Finance Commission (Rs 40,625 crore).
These grants are also typically front-loaded, so after the first instalment of Rs 10,249 crore in 2021-2022, the annual grant amount is expected to decrease to Rs 3,257 crore by 2025-2026.
Further, the state used to get around Rs 3,000 crore per year as GST compensation, but this has fallen to zero since the five-year period for compensation has elapsed.
Centre has been made aware
The Himachal Pradesh government’s spending on salary, pensions and interest payments was 46.33 percent of the total state budget in 2023-24.
According to a memorandum given by the state to the 16th Finance Commission, the salary and pension burden is to rise in the years to come. The number of pensioners is estimated to increase to 2,38,827 by 2030-31 from the existing 1,89,466 and the pension bill will reach around Rs 20,000 crore annually, with the restoration of the OPS being the major factor.
The Himachal government has also said that the state’s salary expenditure is itself 25.13 percent of the budget in 2024-2025.
Himachal Chief Secretary Prabodh Saxena told ThePrint that the Sukhu government has apprised the 16th Finance Commission of the state’s financial condition. “The (state) government has been taking measures for resource mobilisation and cutting down on wasteful expenditure,” he added.
The Comptroller and Auditor General of India (CAG) had in a 2017 report commented that Himachal Pradesh was heading towards a debt trap. In its report, it had said that the state’s liabilities had reached almost Rs 4,200 crore in 2015-2016 and it would have to repay 62 percent of the debt till 2023.
(Edited by Nida Fatima Siddiqui)
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