Himachal Pradesh Warns of 'Major Catastrophe' as Central Financial Lifeline Faces Termination
The picturesque Himalayan state of Himachal Pradesh is staring down what its leadership describes as a "major catastrophe" with potentially devastating consequences for government institutions and public sector employees. This dire warning follows a recommendation by the 16th Finance Commission to discontinue the crucial Revenue Deficit Grant (RDG) that currently constitutes 12.7% of the state's total budget.
Chief Minister Declares War on Central Recommendation
Chief Minister Sukhvinder Singh Sukhu, speaking from Shimla on Sunday, vowed to launch both a legal and political "battle" against what he termed an existential threat to the state's financial stability. "We are warriors and will fight this as a battle," Sukhu declared following a sobering financial presentation that painted a picture of a state teetering on the brink of insolvency.
"If the RDG is stopped today, it will not be available tomorrow. This is about safeguarding our legitimate rights," the Chief Minister emphasized, highlighting the grant's critical importance to Himachal Pradesh's fiscal survival.
The Stark Financial Reality: A State Heading Toward Insolvency
The state's finance department delivered a chilling assessment of the impending crisis. For the 2021-2026 period, Himachal Pradesh had projected a staggering deficit of Rs 80,170 crore, previously covered by central grants. Without the RDG, the state faces an immediate resource gap of Rs 6,000 crore for the 2026-27 fiscal year alone.
The numbers reveal a precarious financial position:
- Total available resources: Rs 42,000 crore
- Committed liabilities (salaries, pensions, debt servicing): Exceeding Rs 48,000 crore
- Result: A structural deficit that threatens basic governance functions
Drastic Austerity Measures Proposed to Avert Total Collapse
To prevent what officials describe as a complete financial meltdown, the finance department has recommended a series of radical austerity measures that would fundamentally reshape the state's social contract:
- Wage Freezes: A complete freeze on dearness allowance (DA) and a prohibition on future pay commissions or salary revisions for government employees.
- Subsidy Cuts: Complete discontinuation of subsidies for electricity, water, and food, along with the elimination of bus fare concessions.
- Job Losses: Abolition of all government posts vacant for more than two years, coupled with a 30% downsizing or closure of existing government institutions.
- Privatization: Sale of power distribution companies (discoms) and the merger or privatization of public sector undertakings.
The GST Conundrum: A 'Producer State' Disadvantaged
Chief Minister Sukhu highlighted how Himachal Pradesh's unique economic position has been further compromised by the implementation of the Goods and Services Tax (GST). As a "producer state" with a relatively small population of 75 lakh, HP has seen its tax collection growth plummet from 14% to just 8% under the consumption-based GST system.
"This structural disadvantage has severely limited our ability to generate internal revenue to offset central cuts," Sukhu explained, pointing to what he views as an inherent flaw in how GST impacts smaller, production-oriented states.
Demands for Central Intervention and Historical Arrears
The state government has put forward several demands to the central government:
- Return of aging power projects to state control
- 50% royalty on fully repaid hydroelectric ventures
- Payment of Rs 4,500 crore in unpaid arrears from the Bhakra Beas Management Board (BBMB) dating back to 2012
The Chief Minister has offered to meet with Prime Minister Narendra Modi, alongside opposition BJP lawmakers from Himachal Pradesh, to seek a reversal of the Finance Commission's recommendations before they receive final approval.
"The BJP cannot compare us to 16 other states whose grants were stopped," Sukhu argued. "Those states have the resources and tourism infrastructure to survive; we do not."
The looming financial crisis represents what could be the most significant challenge to Himachal Pradesh's governance structure in decades, with potential ramifications for every citizen dependent on government services, subsidies, or employment.
