Shimla: Facing what Chief Minister Sukhvinder Singh Sukhu calls Himachal Pradesh’s “toughest financial year in decades”, his Congress-led government is charting a new course. In the Rs 58,514-crore budget for 2025-26, unveiled Monday, Sukhu avoided the usual populist freebies that have strained the state’s finances. Instead, he focused on strengthening the rural economy while managing a mounting debt burden and declining central grants.
Of the total budget this year, 67 percent is earmarked for salary, pension, interest payments, and debt repayment, leaving limited funds for development.
The state’s budget for 2025-26 stands at Rs 58,514 crore, marking a modest increase of Rs 70 crore from the previous fiscal year’s Rs 58,444 crore. This comes even as the state assembly, in its current session, approved a supplementary budget of Rs 17,053.87 crore to meet additional financial needs of 2024-25.
With the opposition Bharatiya Janata Party (BJP) in his crosshairs for alleged fiscal mismanagement, Sukhu’s blueprint lays bare a stark reality—Himachal’s finances are precarious, and tough choices lie ahead.
According to the budget document, the state’s debt has surged to Rs 1,04,729 crore. Of this, Rs 29,046 crore has been borrowed in the 2 years since Sukhu took office. However, he maintains that 70 percent of these funds were used to repay loans and interest racked up by the previous BJP government.
“We’re paying for their mistakes,” the CM told the state assembly.
The state’s debt-to-GSDP (Gross State Domestic Product) ratio, which stood at 39.29 percent in 2020-21, has continued its upward trajectory, reaching 42.5 percent in 2024-25. Meanwhile, its per capita debt now stands at Rs 1,17,000.
This fiscal reckoning comes as revenue deficit grants (RDG) from the central government—a crucial lifeline for Himachal—begin to dwindle.
Under the Fourteenth Finance Commission (2015-20), the state received Rs 40,624 crore, averaging Rs 8,000 crore annually. But the Fifteenth Finance Commission (2021-26) slashed this to Rs 37,199 crore—a real-term drop to Rs 30,000 crore when inflation is factored in—as part of its overall recommendation to reduce such grants to all states.
The decline has been steady: from Rs 10,949 crore in 2021-22 to Rs 9,377 crore in 2022-23, Rs 8,058 crore in 2023-24, and just Rs 6,258 crore this year. For 2025-26, it plummets to a mere Rs 3,257 crore—a 70 percent fall in 4 years.
“In my view, the year, 2025-2026, will be the most challenging year for our state’s economy in the past several decades,” Sukhu warned.
Of every Rs 100 spent, Rs 25 goes to salaries, Rs 20 to pensions, Rs 12 to interest payments, and Rs 10 to debt repayment. That leaves just Rs 24 for everything else—including capital works, infrastructure, and development. Capital expenditure, vital for growth, has withered to a fraction of revenue spending. In 2021-22, it stood at Rs 5,200 crore against Rs 34,500 crore revenue expenditure—a lopsided 1:6.6 ratio that chokes progress.
Meanwhile, revenue expenditure has surged, rising 23 percent for salaries, 17 percent for pensions, and 3 percent for subsidies in 2023-24 alone, and is projected to top Rs 40,000 crore this year. The fiscal deficit, at 5.76 percent of GSDP is double the 3 percent limit mandated by the fiscal responsibility law.
Sukhu’s approach signals a shift away from the freebie-fuelled policies of the past. Gone are the blanket handouts—free electricity costing hundreds of crores, or the Rs 4,500 crore monsoon relief package of 2023, or Rs 1.3 lakh for a completely-damaged house. Instead, he announced a modest Rs 6 hike in the minimum support price (MSP) for milk, with MSP for cow milk rising from Rs 45 to Rs 51 per liter, and for buffalo milk from Rs 55 to Rs 61. This is vital for rural farmers, whose innovations in polyhouses and micro-irrigation have sustained agriculture, contributing to a projected 8.8 percent GSDP growth, reaching Rs 2,27,162 crore this year.
Former CM Jairam Thakur told ThePrint, “Blaming others is the easiest thing. I wish the chief minister could announce measures for resource mobilisation in the budget. There is nothing new in the budget. This is just juggling of statistics.”
“For the first time, the budget size has not been increased in the state,” he added.
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Himachal’s loan realities
Facing state financial constraints, the Congress government has scaled back its promise of Rs 1,500 monthly aid for all women, opting for a phased rollout in the 2025-26 budget. Women turning 21 between 1 January, 2025, and 31 March, 2026, as well as those working in others’ homes from 1 June, 2025—along with their eligible daughters—will receive Rs 1,500 per month under the “Indira Gandhi Pyari Behna Sukh Samman Nidhi Yojana”.
The state’s own revenue streams offer little relief. Tax collections, projected at Rs 12,500 crore for 2024-25, have remained stagnant at 5-6 percent of GSDP—too weak to compensate for shrinking central funds or curb the mounting debt. Meanwhile, borrowings are being used for survival rather than growth.
In 2021-22, 72 percent of the Rs 8,650 crore in loans—over Rs 6,200 crore—was used for revenue expenses, while debt servicing consumed 25 percent of total receipts, with interest payments alone accounting for 13 percent.
State-run enterprises compound the problem, with the Electricity Board losing Rs 1,800 crore and the Road Corporation Rs 1,700 crore—draining resources that could have funded roads or power plants.
Sukhu squarely blamed the BJP, accusing it of burdening the state with loans that now constrain his administration. However, the crisis runs deeper than partisan politics, stemming from a decade of missed opportunities.
Himachal’s natural wealth—hydropower generating over 10,000 MW, tourism drawing millions to Shimla and Manali, forests spanning 68 percent of its land—could be a fiscal goldmine. Yet royalties from hydropower remain meager, tourism taxes are trivial, and forest revenues from timber, resin, and eco-tourism barely register.
“We’ve relied on grants instead of building our own strength,” a senior finance official said to ThePrint on condition of anonymity. “Now, the well is running dry.”
CM Sukhu laid bare the state’s loan realities, stressing the need for transparency in the cash-strapped state. He noted that fiscal rules cap the deficit at 3.5 percent of GSDP in 2024-25 and 3 percent in 2025-26, with borrowings restricted to Rs 6,551 crore this year by the central government under constitutional limits. Exceeding this ceiling slashes next year’s allowance, and no loans can be taken without New Delhi’s nod. Sukhu inherited a Rs 76,185 crore debt from the BJP as of March 2023, with Rs 12,266 crore spent on interest and Rs 8,087 crore on repayments—leaving just Rs 8,693 crore of the Rs 29,046 crore borrowed under his watch for development. “Seventy percent of our loans just clear old dues,” he said.
The chief minister vowed to fight on, pledging to rally the state’s people, employees, and assembly to press the central government for justice. “My government is committed to facing this challenge together,” he declared, signaling a united stance against what he sees as an unfair cut in RDG. But with grants dropping to Rs 3,257 crore next year, the odds are daunting. Analysts warn of a debt trap: when 25 percent of revenue repays old loans and 72 percent of new ones cover running costs, growth stalls. The CAG predicts liabilities could hit Rs 1 lakh crore soon, a tipping point for a small, nature-reliant economy.
“Revenue spending must shrink—limit free electricity to the poorest, freeze hiring, and reform bleeding state enterprises. Borrowings should shift to capital projects: Rs 15,000 crore annually for hydropower plants, solar farms, and tourist roads, aiming for a 1:3 revenue-to-capital ratio,” said Arpan Chauhan, a Shimla based economist, adding, “Own tax revenue must rise to 8 percent of GSDP, or Rs 18,000 crore. Hydropower royalties could jump from 12-15 percent to 20-25 percent, adding Rs 1,000 crore; a 5 percent tourism tax on hotels and transport could yield Rs 1,500 crore; and stricter mining levies on sand and gravel might unlock Rs 500 crore.”
(Edited by Zinnia Ray Chaudhuri)
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