Debt burden squeezes Himachal’s fiscal space

The Comptroller and Auditor General (CAG) of India has raised serious concerns over Himachal Pradesh’s worsening financial position, with the state’s total debt touching Rs 1.02 lakh crore and committed expenditure leaving little fiscal space for development.

Chief Minister Sukhvinder Singh Sukhu, who holds the Finance portfolio, laid the CAG report for 2024-25 in the Vidhan Sabha today. The report noted that the state’s fiscal deficit stood at Rs 12,611.05 crore, or 5.44 per cent of its GSDP, far above the 3 per cent limit prescribed under the Himachal Pradesh Fiscal Responsibility and Budget Management (FRBM) Act, 2005.

The state’s revenue deficit was also high at Rs 6,804.61 crore, equivalent to 2.94 per cent of GSDP. The CAG said Himachal had failed to keep both the revenue and fiscal deficits within the targets prescribed under the FRBM Act, leaving limited room for fiscal consolidation.

Himachal’s internal liabilities rose 9.78 per cent in a year to Rs 67,448.38 crore as on March 31, 2025. Its overall debt reached Rs 1,02,187.62 crore, or about 44 per cent of GSDP. During 2024-25, the state raised Rs 24,100 crore in internal debt while repaying Rs 18,091 crore of old debt.

The CAG cautioned that the combination of high debt and weak revenue growth posed a threat to long-term debt sustainability. It observed that borrowed funds should ideally be deployed for capital creation and developmental activities rather than current consumption or repayment of interest on existing loans.

The state’s finances are further strained by high committed expenditure. Against revenue receipts of Rs 40,872.35 crore in 2024-25, revenue expenditure stood at Rs 47,676.96 crore. Interest payments alone accounted for Rs 6,260.93 crore, while capital expenditure was only Rs 5,956.83 crore.

Expenditure on salaries, pensions and interest totalled Rs 33,266 crore, consuming 86 per cent of revenue receipts and leaving only 14 per cent for developmental activities. Pension expenditure witnessed a sharp 45 per cent increase in 2022-23, rising from Rs 6,399 crore to Rs 9,284 crore.

The state spent Rs 1,872 crore on subsidies, including those for power, transport and food and supplies, accounting for four per cent of revenue expenditure.

The CAG also pointed to revenue vulnerabilities, noting that SGST, state excise and sales tax together contributed 81 per cent of total revenue. The state achieved only 84.57 per cent of its budgeted revenue estimates, recording a shortfall of Rs 2,328.68 crore.

The audit body called for urgent expenditure reforms, including rationalisation and better targeting of subsidies and prudent management of salary and pension commitments, to restore fiscal flexibility and put the state on a sustainable financial path.

Numbers that tell the story

Rs 1.02 lakh cr Himachal’s total debt in 2024-25, equivalent to about 44% of GSDP

Rs 12,611 cr Fiscal deficit, at 5.44% of GSDP

Rs 6,805 cr Revenue deficit, at 2.94% of GSDP

Rs 33,266 cr Salaries, pensions and interest payments, consuming 86% of revenue receipts

Rs 6,261 cr Interest payments during 2024-25

Rs 5,957cr Capital expenditure, lower than interest payments

Rs 24,100 cr Fresh internal debt raised during the year

Rs 1,872cr Spending on subsidies, including power, transport and food supplies