Can Himachal CM Sukhvinder Sukhu navigate the fiscal storm?
As Himachal Pradesh gears up for the 2025-26 Budget today, the state faces mounting financial challenges. A massive debt exceeding Rs 1 lakh crore, fiscal deficit pressures, capital expenditure constraints, recurring overdraft crises and unfulfilled poll promises have placed Chief Minister Sukhvinder Singh Sukhu’s government in a tough spot. The situation could worsen as the Centre’s revenue deficit grant, which stood at Rs 6,258 crore this year, is expected to be halved, further tightening the state’s financial condition.
Major hurdles for Budget
Finance Minister CM Sukhu is under immense pressure to deliver on electoral promises, especially the Rs 1,500 monthly stipend for unemployed youth and women. However, with limited fiscal space, managing the deficit, overcoming capital expenditure constraints and tackling overdraft issues will be uphill battles. The Centre’s discontent over Himachal’s refusal to adopt the Unified Pension Scheme (UPS), despite a Rs 1,600 crore incentive offer, could lead to further financial roadblocks.
Balancing poll promises
Commitments such as free electricity, pension hikes and farmer incentives require substantial funding. The government may opt for phased implementation to balance fiscal prudence with public expectations. Ensuring sustainable funding sources while keeping voter confidence intact will be a critical challenge.
Fiscal deficit management
The state’s fiscal deficit remains a key concern. With the Centre aiming to reduce its fiscal deficit to 4.4 per cent of GDP in 2025-26, states are under pressure to align their finances accordingly. Himachal may need to enhance tax compliance, optimise GST collections and explore non-tax revenue sources such as asset monetisation. Cutting non-essential expenditures will be crucial to prevent further fiscal deterioration.
Overdraft and liquidity crisis
The state’s frequent overdrafts underscore a growing liquidity crisis. The upcoming Budget is expected to introduce stringent fiscal discipline to reduce short-term borrowing dependency. A structured debt repayment plan and better expenditure management will be vital. Additionally, the state government is likely to push for a higher share of central funds to ease cash flow pressures.
Declining capital expenditure
A review of last year’s Budget (2024-25) reveals a declining trend in capital expenditure, affecting infrastructure projects. The capital outlay dropped from Rs 9,035 crore in 2023-24 to Rs 8,313 crore in 2024-25—an 8 per cent decrease. Meanwhile, revenue expenditure outpaced revenue receipts, widening the fiscal deficit to 3.58 per cent. Despite these constraints, CM Sukhu increased allocations for education (Rs 8,828 crore to Rs 9,560 crore, an 8.68 per cent rise) and health (Rs 3,116 crore to Rs 3,415 crore, a 9.91 per cent increase). In 2025-26, the Finance Minister must innovate new mechanisms to counter these trends, as they are bound to impact developmental activities.
Employment generation
Job creation remains a major concern for the state. However, given the heavy salary burden on the exchequer, large-scale government recruitment is unlikely. Instead, the government is expected to favour contractual and outsourced employment in various departments. The Budget may emphasise skill development programmes, entrepreneurship incentives and self-employment schemes as alternative job-creation strategies. Investment in tourism, horticulture and hydroelectric power could also spur private-sector employment, reducing dependence on government jobs. Additionally, schemes under the National Rural Employment Guarantee Act (NREGA) may be expanded to support rural employment.
Central assistance
With limited internal revenue sources, Himachal Pradesh heavily depends on central grants and GST compensation. The Centre has announced Rs 1.5 lakh crore in 50-year interest-free loans for state capital expenditure in 2025-26. However, securing a larger share of these funds will depend on the state’s ability to align with the Centre’s economic priorities. The 2025-26 Budget will require a delicate balance between fiscal responsibility and public expectations.
(The writer is a Shimla-based senior political analyst)
