Shimla: Six months into its term, the Sukhvinder Singh Sukhu-led Congress government in Himachal Pradesh is staring at a grim fiscal situation, with the state treasury notching up an overdraft of Rs 1,000 crore in the very first quarter of the current financial year, ThePrint has learnt.
Amid the fiscal crunch, there have been reports that large numbers of government employees and contract workers have not yet been paid their salaries for the month of May. This includes more than 10,000 employees of the Himachal Road Transport Corporation (HRTC), according to Khemender Gupta, secretary of the HRTC’s joint action coordination committee.
Chief Minister Sukhu, however, denied that there has been any such delay. In a tweet Wednesday, he alleged that a “manipulated campaign is being run from Delhi to malign the image” of the state.
All Govt employees of Himachal Pradesh are getting paid well on time as per the schedule . A manipulated campaign is being run from Delhi to malign the image of Himachal Pradesh.
No media/news channel in Himachal is aware of any such developments, wonder who is spreading these…
— Sukhvinder Singh Sukhu (@SukhuSukhvinder) June 14, 2023
This fiscal slippage is also worth taking note in light of some of the Congress’s promises in its campaign for the assembly elections last year, which included the restoration of the Old Pension Scheme (OPS), and Rs 1,500 as monthly financial aid to women aged 18-60.
An overdraft occurs when a government’s short-term expenditure exceeds the amount in the relevant accounting head, following which the government has to take a short-term loan to tide itself over. For instance, the Himachal Pradesh government resorted to borrowing Rs 800 crore from the market last week to maintain the flow of funds, according to an official in the state finance department.
Asked about the overdraft, Chief Secretary Prabodh Saxena told ThePrint, “We have borrowed money as per rules to meet our expenses and within our limits. This is a routine process. Things are under control now. I want to make it clear that there would not be any paucity of funds for developmental works. Several resource mobilisation measures are afoot.”
However, sources in the state’s finance department said the situation is grim and that this overdraft could recur in the next few quarters.
The Reserve Bank of India (RBI) in its annual study of state finances had pegged Himachal Pradesh’s total liabilities at 42 percent of Gross State Domestic Product (GSDP) in 2023. The report added that the state government has to repay market loans amounting to Rs 15,000 crore over the next five years on which interest ranges from 6.36 to 8.87 per cent.
Terming the situation in Himachal Pradesh “alarming”, former state economic adviser Pradeep Chauhan told ThePrint that the state is “solely dependent upon external funding, especially loans” to fill its coffers. “Most of the funds go into repaying debt, salaries and pensions. Things will not improve until new income sources are established,” he added.
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‘Dependence on central grants & loans’
In 2017, the Comptroller and Auditor General (CAG) had cautioned the state to adopt fiscal prudence or risk falling into a debt trap.
The CAG’s latest report, tabled in the state assembly on 4 April, said the state had to repay around Rs 60 crore over the next 10 years. It added that the state’s overall liabilities rose by Rs 18,092.07 crore to Rs 69,122.58 crore by 31 March, 2022 from Rs 51,030.51 crore in 2017-18.
While 10 per cent of the liabilities (Rs 6,952 crore) are to be paid by next year, 40 per cent (Rs 27,677 crore) are due in the next two to five years. The remaining 50 per cent (Rs 34,001 crore) are to be paid after five years.
“Himachal is a state with almost negligible income. Everything depends upon central grants and loans. None of the successive governments thought about resource mobilisation,” said a senior civil servant associated with the state government’s finance department.
It is important to note that in 2015, the 14th Finance Commission had allocated Himachal Pradesh a revenue deficit grant (RDG) of Rs 40,625 crore — the second highest of all 11 states that received it.
This was an increase from the RDG of Rs 7,889 crore allocated to it by the 13th Finance Commission in 2007.
Then, in 2022, the 15th Finance Commission allocated Rs 37,199 crore to the state.
“The grant was meant for bridging the gap between revenue receipts and expenditure, so the state could mobilise its resources,” said the civil servant quoted earlier. “But the state used the grant for regular expenditure.”
Another official, previously associated with the state finance department, said the political leadership in Himachal “succumbs” to pressure. “No one dares to think about fiscal prudence when it comes to votes or appeasing sections, especially employees,” he added.
According to the budget estimate for FY 2023-24, salaries, pensions, loans and interest payments constitute around 62 per cent of Himachal Pradesh’s total budget.
The pension and salary bills have been swelling over the years. According to the RBI’s report on the state’s finances, Himachal Pradesh’s salary receipts swelled to Rs 10,644 crore in FY 2020-21 from Rs 4,080 crore in FY 2009-10. Going by the budget estimates, the figure will be around 13,502 crore in the current fiscal.
Similarly, the state’s pension bill went up to Rs 7,082 crore in 2021-22 from Rs 591 crore in 2004-05.
An analysis of budget documents of the current fiscal year revealed that of every Rs 100 spent by the Himachal Pradesh government, Rs 26 is spent on salaries, Rs 16 on pensions, Rs 10 on interest payments, Rs 10 on loan repayments, Rs 9 on grants to autonomous institutions, and the balance of Rs 29 on other expenditures.
Freebies
In March, Sukhu had compared the state’s financial condition with that of Sri Lanka, which is currently in the throes of an economic crisis. The comparison drew flak from many quarters, including Pratibha Singh, the Himachal Pradesh Congress Committee (HPCC) chief and Lok Sabha MP from Mandi, who is also the widow of former CM Virbhadra Singh.
As things stand now, Himachal Pradesh is under a debt burden of Rs 75,000 crore for which both major political parties in the hill state — the Congress and the Bharatiya Janata Party (BJP) — blame each other.
The Congress government on 3 May formed a three-member panel headed by Deputy CM Mukesh Agnihotri and comprising agriculture minister Chander Kumar and rural development minister Anirudh Singh to review the status of the state’s finances.
In its first meeting on 9 June, Agnihotri declared that the panel was looking to issue a white paper in this regard. “More meetings will be held in the days to come,” he told reporters after the meeting, adding that the “previous BJP government’s mismanagement has pushed the state to the worst fiscal conditions”.
The opposition BJP, on the other hand, has alleged that Sukhu is failing to run the government effectively.
According to Randhir Sharma, the BJP MLA from Shri Naina Devi, had the chief minister been worried about the state’s economy, “he would not have appointed an army of chief parliamentary secretaries” or “given cabinet ranks to several Congress leaders”.
Moreover, the central government’s decision in February to lower the borrowing limit for states has come as a blow to the state’s already fragile economy. The limit was lowered to 3.5 percent of each state’s GDP from 5 percent .
“This is an attempt to suppress the Congress government,” Sukhu told reporters on 10 June. “We will take up the matter with the central government. We have been taking steps to stabilise the finances, but the Centre’s decision is unfair,” he remarked.
Sharma, however, said, “As far as lowering the borrowing limit is concerned, this decision was taken last year by the central government. Despite knowing the situation, the Sukhu government went ahead wasteful expenditure.”
Further, the Congress’s decision to restore the Old Pension Scheme (OPS) for 1.36 lakh government employees is expected to place an additional burden of Rs 1,000 crore on the state’s finances.
However, according to a state finance department official, the scheme is unlikely to impact the state’s coffers for the first five years since the number of government employees due to retire in this period is low.
That said, the state government has explored various measures to raise its revenues, including enacting a law to impose water cess on power projects. The state has also urged the central government to intervene in order to allow it to increase its share in hydroelectric power projects to up to 40 per cent since these projects come with limited liabilities.
While these measures could help the state’s fiscal health in the longer term, for the Sukhu-led Congress government, overcoming the immediate crisis is its first challenge going ahead.
(This is an updated version of the report)
(Edited by Amrtansh Arora)
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