Hit Hard By RDG, Fiscal Crunch, Sukhu Lays Down Terms For Centre & States On Multi-Purpose Projects In Himachal

In 1997, at a party rally held at Shimla’s Rani Jhansi Park, veteran leader Virbhadra Singh became visibly emotional as he sought to draw the Congress leadership’s attention to the United Front government's unfair neglect of Himachal Pradesh and denial of its rightful share of central funding.

The then AICC president, Sitaram Kesari, also attended the rally and acknowledged the sentiment.

The point, he mentioned, was a louder reminder to the centre that Himachal Pradesh, a perpetually resource-starved state, can’t survive without the central support, or handholding.

Virbhadra Singh kept highlighting the issue of financial injustice also during his other three successive terms later, and also filed a lawsuit in the Supreme Court to enforce the state’s share of 7.19 per cent in the Bhakra Beas Management Board (BBMB). The case was eventually decided in the state’s favour in 2011. But, until now, Himachal Pradesh has not received its dues.

Earlier than this, in 1991, Shanta Kumar, a seasoned BJP veteran and two-time Chief Minister of the state, led the Adhikar Yatra to Delhi to demand Himachal Pradesh's "rightful" share of central grants and resources.

The protest saw the participation of hundreds of elected representatives, including panchayat members, zila parishad members, MLAs, and MPs, who sat on a dharna in Delhi.

Years later, Chief Minister Sukhwinder Singh Sukhu is now in the middle of a new controversy following the central government's decision to abolish the Revenue Deficit Grant (RDG), which constituted 12.71 per cent of the state's budget and represents a direct loss of Rs 6000 crore in annual grants that the state will forfeit after March 31, 2026.

With the state’s debt soaring beyond Rs 1 lakh crore, its annual borrowing cap firmly fixed at Rs 10,000 crore by the Centre, and its taxation powers significantly curtailed in the post-GST regime, the Congress-ruled government stands perilously close to a full-blown fiscal collapse.

The Revenue Deficit Grant, a statutory grant-in-aid financial mechanism under Article 275(1) of the Constitution, has been a lifeline for the resource-starved state to bridge the gap between its assessed revenue of Rs 42,000 Cr, including a borrowing limit of Rs 10,000 Cr, and expenditure exceeding Rs 48,000 Cr per annum. The total loss to the state in the next five years is estimated to be more than Rs 50,000 cr, which can detail the state's growth, basic services, subsidies, and grant-in-aid to PSUs like HPSEB and HRTC.

The debt repayments alone are Rs 13,500 crore every year, plus another Rs 27,000 crore on salaries and pensions every year.

State Finance Secretary Divesh Kumar, a 1997-batch IAS officer, termed the fiscal condition as “cartographic” while addressing the state cabinet and MLAs during an official presentation.

“The debt-burdened state will find it difficult to meet governance, ensure service delivery and fund developmental activities in a topographically challenging state after March 31, 2026”, he explained, leaving everyone stunned.

What has aggravated the situation for the state is the report of the 16th Finance Commission recommending a complete withdrawal of GST to 17 states, of which Himachal Pradesh had the highest dependency on the centre’s Grant-in-Aid since its creation in 1971.

Says Tikender Singh Panwar, a former Shimla deputy mayor and policy expert, "For nearly seven decades, the Indian Republic has recognised a foundational truth of federal governance: not all states are born with equal economic capacity, and some, especially mountain and border states, carry structural disadvantages. The revenue deficit grant (RDG) emerged from this understanding. But not anymore now."

He adds, “This marks a rupture in India's federal compact—one that threatens to push the state towards fiscal subordination and political marginalisation of Himachal Pradesh, a border hill state, never carved out on the assumption that it would be a revenue surplus."

For the first time, Chief Minister Sukhwinder Singh Sukhu, who still has two years to go ahead of the 2027 state assembly poll, the situation is unprecedented –a walk on the razor’s ridge. His confrontation with the centre is inevitable, as is also the formidable challenge of sustaining governance.

With the BJP distancing itself from the RDG crisis and refusing to support his proposal to jointly approach Prime Minister Narendra Modi for relief, Sukhu finds himself at a decisive and politically isolating moment. The hopes of securing timely assistance from the centre, even a rightful ‘unresolved share,' continue to fade.

“The RDG is neither a Congress issue nor my personal agenda. It is the state’s right granted under the Constitution—Article 275(1)—as it forms a crucial pillar of India’s fiscal federalism. Here is an example of how the state, whose resources are meagre, borrowings capped, and assessed expenditure obligations high, has been left to fend for itself,” he strongly feels.

While he and his cabinet prepare to fight, Sukhu wants to take his fight to Delhi’s doorstep—both political and legal. “I have all options open," he said after meeting former union finance minister P. Chidambaram.

Explaining his point, Sukhu says the government had inherited a staggering debt burden of Rs 76,680 crore from the BJP government led by Jairam Thakur.

This was despite a “liberal financial assistance” from the Centre to the BJP government, which was provided with nearly Rs 54,000 crore as RDG and an additional Rs 16,000 crore as GST compensation cess, amounting to about Rs 70,000 crore in Central support. Yet, it left a debt burden of Rs 76,680 cr and other liabilities of Rs 11,000 cr.

Back from Delhi after consultations with senior Congress leaders, including Rahul Gandhi and AICC president Mallikarjun Kharge, Sukhu appears poised to recalibrate his response to the Centre’s move differently. He still stands for logical financial relief but also presses for environmental justice in the hill state, bearing ecological burdens for the nation.

Earlier, he had raised the issue of setting up a Rs 50,000 cr environmental fund for the Himalayan states, which preserve a vast forest cover, glaciers, and river systems that benefit the entire country. Yet, it has been facing an increased intensity of disasters like frequent landslides and extreme weather events, including torrential rains, cloudbursts, and floods.

Together, these climate-driven extremes are placing immense ecological and economic stress on Himachal Pradesh, but the state is not getting any reciprocal cost of its ecological services to the nation.

Himachal Pradesh, he maintains, was not merely a geographical entity but the soul of the Himalayas. Its glaciers, rivers, forests and mountains define its identity and sustain millions beyond its borders.

Reminding that the state is fighting for its rightful dues, he asserted, “The government will not proceed with two upcoming projects--- Kishau and Renuka dams—unless the neighbouring states provide concrete assurances to settle the long-pending arrears of the Bhakra Beas Management Board (BBMB).

The Supreme Court had delivered its verdict in favour of Himachal Pradesh’s claim of a 7.19% share in the power generated at BBMB projects in 2011. The state has still not received its Rs 4500 cr arrears.

Kishau Dam is being developed on the Tons River, a tributary of the Yamuna River that flows through the border areas of Himachal Pradesh and Uttarakhand. The Renuka (Renukaji) Dam, declared as a project of national importance, is coming up on the Giri River, another tributary of the Yamuna.

Both dams are multipurpose water resource projects primarily aimed at addressing water storage, irrigation, and water supply and also hydropower, planned as a shared initiative involving six basin states: Uttarakhand, UP, Delhi (NCR region), Haryana, Rajasthan, and Himachal Pradesh.

For the Kishau project, a 236 m high concrete gravity dam will be built on the Tons River to generate 660 MW of power. Its current timeline is 2030, but it is likely to face hurdles if Himachal Pradesh backs out.

Similarly, in the case of Renuka Dam, a 148 m high rock-fill dam on the Giri River in Sirmaur district, bordering Dehradun, will generate 40 MW of power to meet the needs of regional states. Forest clearance and other clearances have been granted to advance construction, with an expected operational date around 2030. It will supply water to Delhi and the NCR region, along with irrigation/drinking and industrial needs for the basin states.