Reeling under ever-swelling loans, Himachal heading towards slippery slope

The ever-swelling wage and pension bills are pushing the small hill state of Himachal Pradesh, which has been banking heavily on borrowings through market loans with the debt crossing over Rs 62,000 crore, towards a slippery slope with little funds available for development.

The ruling Bharatiya Janata Party seems to have gone populist ahead of the Assembly polls slated in November despite a sizeable chunk of the revenue going towards repayment of loans and interest.

The fund-starved government, reeling under the ever-increasing wage bill with the central schemes as the mainstay of its development, this month announced a financial bonanza to woo around 250,000 employees by enhancing their dearness allowance from 28 per cent to 31 per cent from July 1, 2021, putting an additional annual burden of Rs 6,000 crore on the exchequer.

Copying the Aam Aadmi Party (AAP) Delhi model, the state in January announced waiver of the meter rent and fixed charges for domestic power consumers using up to 60 units a month.

With the recent loan of Rs 1,000 crore for capital expenditure (money spent on creating assets), the government is left with a Rs 600-crore loan limit in this fiscal, an official familiar with the development told IANS.

Admitting the grim financial condition with a major portion of money going towards repayment of loans, Chief Minister Jai Ram Thakur justified it by saying, “We inherited a debt of Rs 48,000 crore from the previous Congress government (in 2017).”

He said to attract investment in the state the Rising Himachal Global Investors Meet was organised in November 2019 and 703 memorandums of understanding worth Rs 96,584 crore were signed. “Now the investments have started flowing into the state.”

The ground breaking for projects worth Rs 42,000 crore which came through the investor summit was held twice, the last when Prime Minister Narendra Modi visited the state to mark the four years of the BJP regime on December 27, 2021, said Thakur, who holds the finance portfolio and will present the budget for 2022-23 in the Assembly on March 4.

As per government figures, the state’s debt burden was Rs 49,096 crore in 2019, while it was Rs 46,385 crore in 2017.

Earlier, the burden on the state was Rs 19,977 crore and Rs 27,598 crore in 2007 and 2012, respectively.

The only succour is that the Centre on the pattern of the northeastern states is funding central schemes for Himachal Pradesh under the 90:10 formula. Before 2014, the Centre used to fund 60 per cent, while the remaining was the state’s share.

Chief Minister Thakur in his last budget speech had said, “During 2021-22, the total revenue receipts are estimated at Rs 37,028 crore, whereas the total revenue expenditure is estimated to be Rs 38,491 crore. Thus, the total revenue deficit is estimated at Rs 1,463 crore. The fiscal deficit is estimated to be Rs 7,789 crore, which is 4.52 per cent of the Gross State Domestic Product.”

“Out of every hundred rupees to be spent by the government in 2021-22, Rs 25.31 will be spent on salaries, Rs 14.11 on pension, Rs 10 on interest payment, Rs 6.64 on loan repayment and Rs 43.94 will be spent on development work and other activities,” he had added.

The total fiscal liabilities-Gross State Domestic Product (GSDP) ratio in 2019-20 increased by 2.31 per cent over the previous year and stood at 37.60 per cent, which was above the target of the 14th Finance Commission, a report by the Comptroller and Auditor General (CAG) has revealed.

The internal debt of the government increased to Rs 39,528 crore (11.78 per cent) during 2019-20 from Rs 35,363 crore in 2018-19, said the CAG in a report for the year ended March 31, 2020, tabled in the Assembly on December 15, 2021.

The liabilities consist mainly of internal borrowings, loans and advances from the government of India, receipts from public account and reserve funds, and the assets comprise mainly the capital outlay and loans and advances given by the state government and cash balances.

The report said the maturity profile of the outstanding stock of public debt and interest of Rs 62,234 crore (principal Rs 40,572 crore and interest Rs 21,662 crore), as on March 31, 2020, indicated that the annual outgo in the shape of public debt repayment and interest will be approximately Rs 6,207 crore during the next five years up to 2024-25.

It observed that from 2016 to 2020 the state had continuously reported a revenue surplus due to the increase in central devolutions on the recommendations of the 14th Finance Commission.

However, the revenue surplus consistently declined from 2016-17 to 2019-20 (except 2018-19) to Rs 12 crore during 2019-20.

The fiscal deficit (Rs 5,597 crore) was 3.38 per cent of the GSDP against the target as per the 14th Finance Commission and the Fiscal Responsibility and Budget Management (FRBM) Act of three per cent or less during 2019-20.

The auditor said in 2019-20 the state had negative growth (minus 0.67 per cent) in revenue receipts over the previous year which was a significant reduction from 2015-16 (31.37 per cent).

Only 33 per cent of the revenue receipts came from the state’s own resources comprising taxes and non-taxes, while the remaining 67 per cent was contributed by central transfers comprising the state’s share in central taxes and duties (15 per cent) and grants-in-aid from the government of India (52 per cent).

The social indicators like literacy rate and rate of infant mortality at birth indicate that the state has a better literacy rate and infant mortality rate than the all-India average. The percentage of below poverty line (BPL) population in the state is also well below the all-India average.

However, said the CAG, the growth rate of GSDP in 2019-20 came down to 7.56 per cent, due to the decline in the growth rate in the industry and service sectors as compared to 2018-19.

The Compound Annual Growth Rate (CAGR) of its GSDP at current prices for the period 2011-12 to 2019-20 was 10.82 per cent, marginally below the CAGR of SCS of 11.24 per cent.

The CAG blamed the alarming deterioration in the financial position to the high expenditure on salaries and wages.

The expenditure on salaries and wages increased from Rs 8,174 crore in 2015-16 to Rs 11,742 crore in 2019-20. It increased by Rs 532 crore (five per cent) during 2019-20 over the previous year and consumed 38 per cent of the revenue receipts of the state during 2019-20.

The interest payments increased by 34 per cent from Rs 3,155 crore in 2015-16 to Rs 4,234 crore in 2019-20. The increase in 2019-20 over the previous year was Rs 212 crore (five per cent).

The interest payments consumed a 14 per cent share of revenue receipts and revenue expenditure.

Tourism, horticulture and hydropower generation are major contributors to Himachal Pradesh’s economic development.

(Vishal Gulati can be contacted at


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