The discontinuation of Revenue Deficit Grant (RDG) in the Union Budget has pushed Himachal Pradesh into a severe financial crisis. The state government is not in a position to pay arrears of new pay scales to employees and pensioners, and may be forced to freeze dearness allowance and discontinue all subsidies. These startling revelations were made in a presentation by Principal Secretary (Finance) Devesh Kumar before the Cabinet, Congress MLAs, officials, and media at the Secretariat on Sunday.
Drastic measures recommended
To improve the state’s economic health, the Finance Department has recommended abandoning the Old Pension Scheme and readopting NPS or UPS, eliminating posts, and halting new recruitments. Kumar warned that all subsidies would need to be discontinued and expressed concern that financial management would become extremely difficult with RDG’s discontinuation.
“The state is heading into a major crisis. The government will not be in a position to implement the next pay commission recommendations for employees. Paying Rs 400 crore liabilities for Himcare and Sahara schemes will be difficult,” he stated.
Shocking suggestions include privatization
The Finance Department has suggested stopping free electricity and potentially handing over the State Electricity Board to private hands. It has also recommended stopping grants to boards and corporations, merging them, and rationalizing existing staff.
Kumar explained that RDG contributed 13 percent of the state’s budget. “The 16th Finance Commission, while reducing RDG to zero, did not consider how the state would function for the next five years. GST has caused significant loss to the state,” he said.
The state’s committed expenditure is Rs 48,000 crore, which must be incurred. The state’s own revenue is barely Rs 18,000 crore. It will receive only Rs 14,000 crore as share in central taxes and can borrow only Rs 10,000 crore, meaning total resources of just Rs 42,000 crore will be available.
In the next financial year, Rs 13,000 crore will be spent on interest and principal repayment alone—meaning the government will need to arrange Rs 3,000 crore just to service debt. The government will have no budget left for development and capital expenditure.
The state owes Rs 8,500 crore in arrears to employees and pensioners. Dearness allowance and its arrears also need to be paid. Funding for the Mandi mediation scheme needs consideration. Court-ordered payments of Rs 1,000 crore are also due.
The department recommended identifying genuine beneficiaries and reducing expenditure on social security pensions. Similar rules should be applied to boards, corporations, and universities. HRTC’s subsidy schemes would need to be discontinued.
Rs 6,000 crore gap still
Kumar revealed that even after abandoning all development works, there will be a Rs 6,000 crore gap between income and expenditure in the next budget. “Even if all subsidies and capital expenditure are reduced to zero, the state’s total receipts in the next financial year will be Rs 52,000 crore. Committed expenditure will be around Rs 56-57,000 crore, creating a gap of Rs 4,000 crore. Adding Rs 2,000 crore in other expenses, this is what we face in the next financial year,” he explained. The current fiscal year’s budget is Rs 58,514 crore.
CM calls it fight for people’s rights
Chief Minister Sukhu said he met with the Union Finance Minister four times and the Finance Commission Chairman four times, yet RDG was discontinued. “Among 17 states, after Nagaland, Himachal is most affected. This is not just the government’s issue—it will badly impact the state’s people. This is a fight for people’s rights and most importantly, a political battle. It should also be fought legally as RDG is a constitutional right,” he stated.
“We don’t ask for RDG if you return our power projects built on our water. If Punjab is the food bowl of India, then Himachal is the water bowl of India,” the CM asserted.
Assets to be sold or leased
Principal Secretary Kumar also suggested that state assets should be made revenue-generating—either sold or leased out. PPP possibilities would be explored.
Other recommendations include:
- Eliminating food subsidy (center-sponsored schemes already exist for BPL families)
- Stopping electricity subsidy would save Rs 1,200 crore
- Reducing social security pension expenditure from Rs 1,661 crore annually to Rs 500 crore
- Removing fake and duplicate beneficiaries from DBT schemes and pensions
- This would enable additional borrowing of Rs 1,800 crore
- Improving tax efforts and collecting Rs 300 crore through various levies
Impact on development
Himachal Pradesh’s budget preparation has largely depended on RDG. Himachal is the second state in the country after Nagaland that relies on RDG for budget making, with RDG constituting 13 percent of Himachal’s budget. Development schemes are expected to be severely impacted.
