Himachal Pradesh: Sukhu takes On Centre Over RDG Cut, Cabinet To meet Rahul Gandhi In Delhi

The resource-starved Congress government in Himachal Pradesh on Wednesday signalled a sharpening confrontation with the Centre over its decision to scrap the Revenue Deficit Grant (RDG), a constitutionally mandated funding mechanism, rendering the hill state fiscally vulnerable and dealt a long-term blow to its development.

While the opposition BJP refused to back the government or join its demand for restoration of the grant, Chief Minister Sukhwinder Singh Sukhu put up a brave face, striking a resolute note.

“I will take this battle to a logical end. It’s not a fight for the Congress or me but is about the rights of 75 lakh people of the state. The history will ask why the BJP did not take a stand against the RDG withdrawal,” he said, as the state assembly voted on a resolution, making a fervent plea to the centre to "reconsider its decision".

According to Clause (ii) of the Terms of Reference for the 16th Finance Commission, it is supposed to decide how to distribute grants of aid to states from the Consolidated Fund of India, as stated in Article 275 of the Constitution.

But the commission did not make any such provision, causing a blow to the state, which has been getting the grant-in-aid up to the 15^th Finance Commission, i.e., 2025-26. Now reduced to zero.

The budget session of the state assembly, convened on February 16, debated the issue for three days, even as the proceedings were marred by ruckus, chaos, disruptions, sloganeering, and protests from both sides.

Before the resolution was put to a vote, the entire opposition had entered the well of the House to stall the resolution, accusing the Chief Minister of "escalating the tension" with the centre to make it a political issue rather than finding a solution. The chief minister must put his own house in order and cut down on wasteful expenditure before passing the buck to the Centre, according to the BJP MLAs. 

Sukhu hit back at the BJP, accusing it of playing politics over issues critical to the state’s future.

The RDG development has, meanwhile, helped him consolidate his position within the party and the government, allowing him to project a united front against the Centre. The opposition BJP is yet to articulate a clear strategy for an effective response to the Union government’s latest decision.

He reminded that former Chief Minister Jairam Thakur, too, had defended the state’s position before the 15th and 16th Finance Commissions, asserting its rightful entitlement to receive RDG as a revenue-deficient state with difficult geographical challenges involving significantly higher costs of development than neighbours like Punjab and Haryana.

But now the BJP has changed its stand because of being in the Opposition, not in the government.

Sukhu offered to set aside 'protocol' to meet Prime Minister Narendra Modi under the leadership of Jairam Thakur to seek continuation of the RDG.

Sukhu maintains that the RDG isn’t a charity from the Centre but a constitutional entitlement under Articles 275 and 280, meant to support states with genuine revenue deficits. The Centre’s decision to discontinue RDG endangers Himachal’s fiscal stability, implementation of welfare schemes, healthcare for the poor and remotely located population, and also development.

The RDG is a lifeline for the state’s economy, as it constitutes 12.7 percent of the budget, unlike bigger states like Haryana, where the RDG is barely 0.01 percent of the budget. It is 0.08 percent in Karnataka, 0.09 percent in Tamil Nadu, and 0.55 percent in Rajasthan.

"For the states with airports and mega industrial projects and corporate giants, the RDG will not matter, but for us, it’s survival," Sukhu maintains

During the five years of the BJP’s five-year term, the state received around Rs 54,000 crore in RDG and Rs 16,000 crore as GST compensation—a total of nearly Rs 70,000 crore in central transfers. 

However, during the past three years of the Congress rule, the state has received only Rs 17,000 cr in the past three years, with zero GST compensation and a frozen limit for borrowings, making it extremely difficult to carry out committed liabilities like loan repayments and meet salaries of the staff. 

Armed with the resolution, Sukhu’s next move is to lead his cabinet to Leader of Opposition (LoP) Rahul Gandhi and AICC president Mallikarjun Kharge on Friday to apprise the party high command about the real impact of the RDG deprivation on the state’s fragile finances and its soaring debt of over Rs one lakh crore.

Kewal Singh Pathania, a first-time MLA and the party’s deputy chief whip, said the Chief Minister and the entire Cabinet would meet Rahul Gandhi and other central leaders on Friday. “This is a moment when everyone must rally behind the Chief Minister,” he said.

The meeting, scheduled for 4 pm, will focus on Himachal Pradesh’s fiscal stress following the recommendation of the 16th Finance Commission to scrap the Revenue Deficit Grant. The meeting, scheduled for 4 pm, will focus on Himachal Pradesh’s fiscal stress following the recommendation of the 16th Finance Commission to scrap the Revenue Deficit Grant.

The state's Deputy Chief Minister Mukesh Agnihotri terms the situation “extraordinary” for the hill state, which has so far survived on grant-in-aid and special funding from the Centre since 1951.

The state’s total income from all resources is approximately Rs 18,000 cr; another Rs 13,950 cr is the share of central taxes. Now, when the state raises Rs 10,000 cr as loans—a minimum fixed limit—its total available revenue will be Rs 42,000 cr, but expenditure is estimated at Rs 48,000 cr. There is an annual shortfall of Rs 6,000 cr, which could have been met by the RDG funding.

Agnihotri, speaking during the debate on the RDG, urged Prime Minister Narendra Modi to step in and support the hill state, stressing its crucial role in safeguarding the nation’s natural wealth, including its fragile mountain ecology, forests, and rich water resources such as rivers and glaciers.

With the Union Budget scheduled to be passed on March 17, Chief Minister Sukhwinder Singh Sukhu has stepped up efforts to seek the Prime Minister’s intervention to restore the funding pattern followed since 1952, and after the state’s formation in 1971, before Himachal Pradesh slides into a prolonged fiscal crisis that could undermine development and disrupt essential public services.