It is worth noting that the total debt of the state was around Rs 48 thousand crores in 2018, which increased to Rs 60,003 crores in 2020-21, Rs 63,736 crores in 2021-22 and Rs 76,651 crores in 2022-23. According to Budget 2024-25, as per the revised estimate for 2023-24, the total debt of the state was Rs 87,788 crores, which is estimated to increase to Rs 96,568 crores in 2024-25.
New Delhi (Viswas News). The hill state of Himachal Pradesh, popularly known as the ‘swing state’, was in the news in 2022 when the results of the assembly elections held that year shifted power from the hands of the Bharatiya Janata Party (BJP) to the Congress and Sukhwinder Singh Sukhu took oath as the Chief Minister of the state. After this, in 2024, Himachal Pradesh was at the center of public discussion and political allegations and counter-allegations when the financial crisis in the state started deepening.
To deal with the challenge of the worsening economic situation in the state, the government announced changes in the salary and pension dates of employees. After the change, now the state government employees will be paid their salary on the 5th of every month and the retired employees will be paid their pension on the 10th of every month. It is worth noting that this was one of the many decisions announced by the state government to improve its economic and financial condition.
A Business Standard Report According to the RBI, the change in payment date was part of an effort to align expenditure with revenue flow, Because the state receives Rs 520 crore as revenue deficit grant from the central government on the 6th of every month and Rs 740 crore from central tax on the 10th of every month.
Revenue deficit grant is related to compensating the revenue deficit. That is, if a government is in a revenue deficit situation (this grant explains the difference between revenue deficit and fiscal deficit) Explainer If the government has a revenue deficit (see above), then it is believed that the income is not enough to meet its basic or essential expenses and in such a situation the government either takes a loan or sells its existing assets, which is called disinvestment. To deal with the situation of revenue deficit, the government can increase taxes or cut down its expenditure.
Before moving ahead, it is important to understand the sources of revenue and the status of expenditure of Himachal Pradesh. These can be understood through the two graphs shown below.
By looking at this graph, it can be estimated that central duties, state taxes and grants-in-aid play a major role in the estimated income of the state.
At the same time, looking at the estimated figures of expenditure, it can be understood that a large part of the total income of the state is being spent on general services and social services.
Increasing financial burden
The total debt of the state is estimated to increase from 37 per cent of GSDP (Gross State Domestic Product) to 42.5 per cent in the financial year 2024-25. At the same time, the fiscal deficit of the state (see Explainer) has increased from 3 per cent in FY22 to 6.5 per cent in FY23. This deficit stood at 5.9 per cent in FY24, which is expected to reduce to 4.7 per cent in FY25.
of Himachal Pradesh for 2024-25 Budget According to the budget, the total income of the state is estimated to be Rs 56,439.74 crore, while the expenditure is estimated to be Rs 58,443.61 crore. In the year 2024-25, the revenue deficit is estimated to be Rs 4,513.55 crore while the fiscal deficit is estimated to be Rs 10,783.87 crore. At the same time, the revenue expenditure is estimated to be Rs 46,666.63 crore, while the capital expenditure is estimated to be Rs 6,269.68 crore.
In simple terms, fiscal deficit is the excess expenditure by the government as compared to its income. Whereas revenue deficit is the difference between the estimated income and the actual income.
At the same time, the revenue deficit is expected to be 2 percent (Rs 4,513 crore) of the state’s GSDP in 2024-25, which is less than the revised estimate for the financial year 2023-24 (2.6 percent of GSDP). Let us tell you that in 2022-23 the deficit was 3.3% of the total GSDP.
At the same time, the fiscal deficit is estimated to be 4.7% (Rs 10,784 crore) as compared to GSDP in 2024-25, which is less than the revised estimate of 2023-24 (5.9% of GSDP). Let us tell you that in 2022-23, the fiscal deficit of the state was 6.5 percent as compared to GSDP.
Increase in revenue expenditure Vs decrease in capital expenditure
To understand the economic condition of Himachal Pradesh, it is important to look at two important figures of the last three financial years, which have also been mentioned above. These two important figures are revenue expenditure and capital expenditure.
Revenue expenditure refers to the expenditure which includes salaries, pensions, loan interest payments, grants and subsidies.
On the other hand, capital expenditure refers to the expenditure which leads to creation of assets and ensures future earnings.
of PRS Analysis According to the report, the state’s revenue expenditure has increased by more than 2 per cent in FY 24-25 as compared to FY 2023-24, while in the case of capital expenditure, there has been a decrease of 8 per cent in 2024-25 as compared to FY 2023-24 (RE).
PRS’s review of Himachal Pradesh’s 2023-24 budget Analysis According to the report, Himachal Pradesh’s decision to move away from the contribution-based National Pension System (NPS) and revert to the Old Pension Scheme (OPS) comes with certain benefits. If a state restores OPS, it does not face an immediate financial challenge as the total pension expenditure may come down in the near term as the need to pay government contribution to NPS disappears.
At the same time, “When the employees who joined after the implementation of NPS start retiring after 2034-35, the cost of returning to OPS will increase. In 2022-23, Himachal Pradesh had the highest expenditure (21%) on pension and retirement benefits as a percentage of total revenue receipts compared to other states.”
PRS Himachal Pradesh Budget 2024-25 Analysis According to the report, “In 2023-24, Himachal Pradesh is projected to spend 21% of its revenue receipts on pension payments, the highest among all states. This is projected to increase to 24% in 2024-25. In 2023, Himachal Pradesh decided to implement the Old Pension Scheme (OPS), discontinuing the NPS.”
It is worth noting that the revenue expenditure was estimated to be Rs 42,704 crore in 2023-24, which was 5% less than the revised estimate of 2022-23, while the capital expenditure was estimated to be Rs 5,202 crore in 2023-24, which was 18% less than the revised estimate of 2022-23.
Committed Expenditure: Increase in pension expenditure
Committed expenditure includes salary, pension and interest. If a state is spending more on this item, then it has to cut down on other expenditure priorities such as capital expenditure.
In 2024-25, a total expenditure of Rs 33,463 crore is estimated in Himachal on this item, which is 79% of the estimated revenue income. If we look at it in figures, then there is salary (41% of total revenue income), pension (24%) and interest payment (15%). According to the analysis of PRS, “In 2023-24, 4% more expenditure is estimated on pension than the budgetary estimate.” In 2022-23, 79 percent of the total revenue income was spent on committed expenditure.
This is also mentioned in the document presented in the Himachal Pradesh Legislative Assembly on 17 March 2023, according to which, “Salary and pension are committed liabilities, which are increasing every year. The arrears of the recent revision of additional liability/salary and pension is about Rs 9000 crore, which will be an additional fiscal burden.”
Current and potential factors affecting financial health
Introduced in Himachal Pradesh Assembly on March 17, 2023 documents The present and potential economic factors affecting the financial position of the state government have been mentioned in detail in the report. It said that the COVID-19 pandemic affected the economy extensively, which affected the state’s finances. However, now the state’s economy is slowly getting back on track, but due to the limited tax base of the state, the role of central grants will be important in the coming years.
According to the report of the 15th Finance Commission for 2021-26, it has been recommended to keep the share of states in central taxes between 2021-26 at 41%, the same as in 2020-21. This is less than the 42% recommended by the Finance Commission for 2015-20. 1% of the amount has been kept for the newly formed Union Territories of Jammu and Kashmir and Ladakh.
The Finance Commission uses a six-factor formula to distribute central taxes among states, which includes population, area and other factors. Of these factors, demographic performance has a weight of 12.5 per cent.
On the basis of this formula, Himachal Pradesh’s share in central taxes has been fixed at 0.830%.
Himachal Pradesh will get Rs 37,199 crore as revenue deficit grant during 2021-26. This is the same grant which is being paid to Himachal Pradesh in the form of installments of Rs 520 crore on the sixth of every month. Apart from this, local bodies will get Rs 3,049 crore and Rs 2,258 crore for disaster management during five years.
Deficit and FRBM targets for 2024-25
Under the Himachal Pradesh Fiscal Responsibility and Budget Management Act, 2005, the state has to keep the deficit within a fixed limit. The fiscal deficit is estimated to be 4.7 percent of GSDP in 2024-25. It is worth noting that the central government has ordered the states to keep their total deficit up to 3% of their GSDP. States have been given an additional 0.5 percent relaxation in this for power sector based reforms.
According to the revised estimates for 2023-24, the state deficit is estimated to be 5.9 per cent of GSDP, which is higher than the budgetary estimate.
It is worth noting that the total debt of the state was around Rs 48 thousand crores in 2018, which increased to Rs 60,003 crores in 2020-21, Rs 63,736 crores in 2021-22 and Rs 76,651 crores in 2022-23. According to Budget 2024-25, as per the revised estimate for 2023-24, the total debt of the state was Rs 87,788 crores, which is estimated to increase to Rs 96,568 crores in 2024-25.
Report According to, the Chief Minister of Himachal Pradesh told the Assembly that the revenue deficit grant for the financial year 2023-24 has been reduced to Rs 1800 crore. Sukhu also feared that the revenue deficit grant for the financial year 2025-26 could be reduced to Rs 3,257 crore, due to which the state will have to bear an additional burden of Rs 3,000 crore. At the same time, in another development, the central government has reduced the state’s borrowing limit to Rs 5,500 crore. Earlier the state government could raise a loan of Rs 14,500, which the Center has now limited to Rs 9000 crore.
Overall, the situation of financial crisis in Himachal arose due to factors like stagnant revenue or increasing debt burden as compared to revenue and revenue expenditure (expenditure on salaries and pensions), withdrawal of old pension scheme along with reduction in central grants, high subsidy burden.
It is worth noting that according to the budget of 2024-25, the growth rate of the state’s GSDP is estimated to be 9.5% in the financial year 2024-25. In the financial year 2022-23, the state’s GSDP was 6.4 percent as compared to 7.6% in 2021-22. Compared to the country’s GDP rate, the country’s economic growth rate was 7.2 percent in 2022-23.
For detailed information on other issues related to economy and business, read other related explainers in the explainer section of Vishvas News read May go.
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2024-09-16 15:50:31