Debt crisis demands urgent action, innovative solutions

Himachal Pradesh’s heavy reliance on Central financial assistance, coupled with the failure of successive Congress and BJP governments to establish sustainable revenue streams, has led to a deep fiscal crisis. Unchecked debt accumulation — Rs 13,442.56 crore under the BJP in 2013-14, Rs 47,906.21 crore during the Congress tenure in 2018-19, and Rs 63,735.61 crore left by the Jairam regime in 2021-22 — has placed the Sukhu government in a precarious financial position.

Diversifying revenue streams

To address fiscal challenges, Himachal must explore new revenue sources. Strengthening tax compliance, rationalising subsidies, and monetising government assets are crucial. The state should also demand financial compensation for its ecological contributions, estimated at Rs 90,000 crore annually. Expanding eco-tourism and religious tourism can generate sustainable income, while green energy projects may attract private investment.

Spending reforms & investment priorities

Streamlining government spending is essential. Pension reforms, restructuring public sector undertakings (PSUs), and prioritising capital investments over recurring expenditures can enhance fiscal health. Negotiating central grants and seeking special financial assistance could help bridge funding gaps. A balanced approach to revenue generation and expenditure control is key to long-term economic stability.

Currently, 70% of new borrowings are used to repay old debts, leaving only Rs 8,093 crore for development projects. Rising pension liabilities and interest payments consume nearly a third of revenue expenditure, restricting financial flexibility. Capital investment has dropped by 46.58%, from Rs 8,485.83 crore in 2024-25 to Rs 3,941.85 crore in 2025-26, limiting funds for growth drivers.

Fiscal challenges & political hostility

The Centre’s fiscal stance against the Sukhu government stems from its decision to restore the Old Pension Scheme (OPS), a move that played a decisive role in the BJP’s defeat in Himachal. The Centre has cut Himachal’s overdraft limit, stalled central project funding, delayed the Revenue Deficit Grant, and withdrawn GST compensation. Borrowing restrictions, disaster relief delays, and inadequate infrastructure support have further strained the state’s finances.

A steep decline in central grants, particularly the Revenue Deficit Grant (RDG), from Rs 10,949 crore in 2021-22 to Rs 3,257 crore in 2025-26, and the end of GST compensation, causing a Rs 9,478 crore shortfall, have worsened the crisis. The state’s total debt has surged to Rs 1,04,729 crore, with Rs 29,046 crore borrowed under the current administration.

Striking a balance

The Sukhu government’s budget prioritises tourism, green energy, rural development and social welfare. However, declining capital expenditure and rising debt remain concerns. Leveraging tourism, natural farming, and ecological compensation could help Himachal navigate its fiscal challenges and drive sustainable progress.

(The writer is a senior political analyst based in Shimla)