Himachal Pradesh Faces A Grim Fiscal Outlook

For the first time, nearly 15,000 government employees in Himachal Pradesh —12,000 working with the loss-making government entity Himachal Road Transport Corporation (HRTC)— did not receive their salaries of May. The long wait continued until mid-June when they finally received their salaries. If numbers and data are to be believed, this does not look like an aberration and the state may have to raise loans and tap into borrowings to pay future salaries.    

The state government treasury struggled with an overdraft of Rs 1,000 crore within the first quarter of the current financial year even as the Rs 53,413-crore budget for year 2023-24 was passed on March 29. The coming months look tough for the state on the financial front and the Sukhvinder Singh Sukhu government, which came to power in December 2022 on the back of promises and guarantees made to people in its poll pitch, may struggle to fulfill some of the promises — the pertinent one being the implementation of the Old Pension Scheme (OPS) in the state. 

With a Rs 75,000-crore debt inherited from the outgoing Bharatiya Janata Party (BJP) government, and a pending liability of Rs 11,000 crore payable to the government employees as arrears of revised pays and pensions, the government has no option but to raise loans worth Rs 800 crore to clear liabilities.

More than 1.36 lakh government employees are set to benefit from the OPS. However, it will involve an additional financial liability of Rs 1,000 crore during 2023-24, which may keep on increasing in the future. The Centre, so far, has declined to return Rs 9,242.60 crore deposited under the National Pension Scheme (NPS) by the state government.

It’s quite clear that the Centre will neither oblige the Congress government nor support the chief minister to fulfill Congress’ poll guarantee relating to the restoration of the OPS after getting a power blow in Karnataka in the recent Assembly polls, where Sukhu was sent to campaign and talk about fulfilling his party promise on the OPS front. 

“Our decision to restore the OPS is intended to be a social security measure for the 1.36 lakh employees, who have contributed to Himachal Pradesh’s development. It’s also a humanitarian decision to see that when employees have means of subsistence,” said Sukhu while talking about the OPS. 

The government has resolved to mobilise resources to meet its fiscal needs. One of the steps includes the imposition of water cess on hydro-power projects, which will help generate a revenue of Rs 4,000 crore per annum. There are 172 hydro-power projects in the state. A similar cess has already been levied in Uttarakhand and Jammu and Kashmir.

This, however, has received stiff opposition from two states — Punjab and Haryana. The Union Ministry of Power has also shot off a letter to Chief Secretary Parmod Saxena terming the move as illegal and unacceptable. Besides the Bhakra Beas Management Board (BBMB) and other government entities —Satluj Jal Vidyut Nigam, National Hydro Electric Power Corporation (NHPC), and National Thermal Power Corporation (NTPC) also have their projects. All the central entities —the power-generating companies— have been told not to pay the cess and to also opt for legal means to oppose it.

However, Deputy Chief Minister Mukesh Agnihotri says: “The state was within its right to levy cess on the water utilised by hydro-power companies. We have not done anything illegal but have replicated what Uttarakhand, a BJP- ruled state, and Jammu and Kashmir have done. The government will not revoke its decision at any cost.”

Yet, Agnihotri fears that the Centre will try to squeeze the government and create a financial crisis to hard sell a fiscal-breakdown-like situation in the states, as Congress plans to introduce the OPS, especially in poll-bound states.

Another poll promise of granting Rs 1,500 per month to all women in the age group of 18-60 years is likely to put serious strains on the exchequer even though only 2.31 lakh women have been covered in the first phase, besides 9,000 others in Spiti — a tribal sub-division in cold deserts of Lahaul-Spiti. This will entail an expenditure of Rs 425 crore to the state exchequer.

“The government is committed to fulfilling all its 10 guarantees in the next five years. The efforts are underway to bring the state’s economy back on the rails and mobilise additional resources to make Himachal Pradesh self-reliant in the next four years,” the chief minister has said. 

But the task is highly daunting and the state’s real fiscal troubles have just started.

As a first big blow to the Congress government, the Centre has stopped releasing a matching grant worth Rs 1,780 crore against the NPA deposits of employees.  

The state’s limit to raise market loans has been cut from Rs 14,000 crore to Rs 8,500 crore—a shortfall of Rs 5,500 crore. This is likely to put the government in a new crisis to pay salaries, wages, and pensions to the employees and also pensioners. The GST reimbursements to the tune of Rs 3,500 crore will also not be available to the state anymore.

The Centre has also capped the state’s limit for external funding.

Pradeep Chauhan, former advisor, economics and statistics, says: “Chief minister’s resolve to mobilise additional resources from measures like water cess and cow cess is appreciable. Yet, there are several limitations. The state’s fiscal base is not un-stretchable as compared to the high administrative costs.”

With Lok Sabha elections slated next year, the Centre may resort to more harsh measures to disallow overdraft facility or stop other grants on the pretext that Congress promises viz OPS, Rs 1,500 per month to women, and also 300 units of free power (yet to be implemented) are reasons for the state’s critical fiscal health.

The chief minister also admits that the BJP government at the Centre will try to starve the state of funds, may cut down grants, deny share of taxes, etc. Yet, the government is determined to bring the economy back on the rails by reducing dependency on loans and increasing income resources.

“We are asking the power companies like BBMB, SJVNL, NHPC and NTPC to raise the state’s share of free power for those projects where they have recovered the cost. The lease period of projects has also been reduced from 99 years to 40 years to get projects vested in the government,” he says. 

More than 900 institutions, which were opened by the BJP government ahead of the elections, have been de-notified as making these institutions functional could have entailed an expenditure of Rs 5,000 crore. Raising VAT by 3 per cent and open auction of liquor vends, which were sold at 40 per cent higher than previous year, are two other initiatives through which the state can generate income. 

But, the BJP, the main Opposition party, says the Congress government has appeased just one section of its vote bank —government employees— whereas 90 per cent of the population is feeling cheated as no poll promise has been fulfilled. 

“What has happened to 300 units of free power, five lakh jobs and purchase of milk at Rs 100 per litre?” asks Randhir Sharma, the BJP chief spokesperson.