Navigating fiscal constraints to drive sustainable growth
Despite tight finances, the Himachal Pradesh government is striving to balance economic growth with fiscal discipline. The budget emphasises tourism, green energy, rural development, and social welfare. Yet, a sharp decline in capital expenditure and rising debt remain concerns.
Himachal Pradesh’s annual budget, presented on Monday by chief minister Sukhvinder Singh Sukhu, reflects a balancing act between fiscal prudence and ambitious plans for tourism, green energy, and rural development. It also underlines the financial challenges that the hill state faces amid dwindling central grants and mounting debt burden.
To mitigate this crisis, economists recommend a three-pronged strategy. First, revenue generation needs a major boost through enhanced tax compliance, rationalisation of subsidies, and monetisation of state assets. Second, Himachal Pradesh will do well to leverage its vast natural resources by aggressively advocating for financial recognition of its ecological contributions, estimated at ₹90,000 crore annually. Additionally, expanding tourism, particularly eco-tourism and religious tourism, can bring in sustainable revenue, while promoting green energy projects to attract private investment. Lastly, the government needs to facilitate private sector participation in infrastructure projects through public-private partnerships (PPP), reducing the reliance on state funds.
Rationalising expenditure
On the expenditure side, a rationalisation of government spending is essential. Pension reforms, restructuring of public sector undertakings (PSUs), and prioritising high-impact capital investments over revenue expenditures can help improve fiscal stability. In addition, the state should seek renegotiation of central grants and explore special financial packages to bridge the fiscal gap. With a strategic mix of revenue-enhancing and expenditure-reducing measures, Himachal Pradesh can navigate its financial challenges and create a sustainable economic model.
Challenges and constraints
Alarmingly, 70% of these borrowings have been used merely to repay previous debts, leaving only ₹8,093 crore for development. The mounting pension burden and high interest payments, accounting for nearly a third of total revenue expenditure, further constrain fiscal flexibility. The steep decline in capital expenditure, plummeting by 46.58% from ₹8,485.83 crore in 2024-25 to ₹3,941.85 crore in 2025-26, highlights the government’s struggle to invest in long-term growth drivers.
New inventive measures proposed in the budget may reshape Himachal Pradesh’s socio-economic landscape. The emphasis on religious and eco-tourism is expected to unlock new revenue streams, drawing pilgrims and nature enthusiasts while generating employment in the hospitality sector.
The crackdown on drug abuse through a Special Task Force promises a safer environment, deterring organised crime and ensuring social stability.
Infrastructure advancements, including the introduction of 500 electric buses and the much-anticipated Shimla Ropeway Project, will not only enhance connectivity but also promote sustainable urban mobility.
On the social front, clearing pension arrears marks a step toward welfare-driven governance, though the backlog of ₹10,000 crore in employee arrears remains a fiscal headache. The restructuring of education administration, with distinct directorates for schools and colleges, aims to bring efficiency and accountability, potentially improving learning outcomes. Welfare schemes targeting women, children, and disabled individuals reaffirm the government’s commitment to social equity.
Decline in capital expenditure
Himachal Pradesh faces a 46.58% decline in capital expenditure, dropping by ₹4,533.98 crore from ₹8,485.83 crore in 2024-25 to ₹3,941.85 crore in 2025-26, signalling constraints on long-term infrastructure investments. The downward trend in capital expenditures may have a direct fallout on the creation of assets. Hence, it will not be easy to launch projects and schemes during the current financial year. Experts attribute it to the special provision of ₹4,500 crore made by the Sukhu government from the regular budget to provide relief to people hit due to catastrophe, causing losses of over ₹10,000 crore to public and private properties.
The revenue deficit stands at ₹361 crore, accounting for 0.83% of the GSDP, while the overall revenue deficit has marginally decreased by ₹96 crore, from ₹6,486 crore to ₹6,390 crore, estimated at 1.43% of the GSDP. Meanwhile, the fiscal deficit remains significant at ₹10,338 crore, constituting 4.04% of the state’s GSDP, highlighting persistent financial strain despite efforts to rein in expenditure.
Himachal Pradesh’s current financial distress stems from multiple structural and policy-driven factors. One of the biggest setbacks has been the sharp decline in central grants, particularly the reduction in the revenue deficit grant (RDG) from ₹10,949 crore in 2021-22 to ₹3,257 crore in 2025-26. Additionally, the discontinuation of GST compensation has resulted in a revenue shortfall of ₹9,478 crore, worsening the fiscal imbalance. The state’s total debt has escalated to ₹1,04,729 crore, of which ₹29,046 crore was borrowed under the present government.
Despite tight finances, the Himachal Pradesh government is striving to balance economic growth with fiscal discipline. The budget emphasises tourism, green energy, rural development, and social welfare. Yet, a sharp decline in capital expenditure and the rising debt remain concerns. Banking on tourism, natural farming, and ecological compensation, the state government is exploring innovative ways to navigate fiscal constraints and drive sustainable growth. kstomar7@gmail.com
(The writer is a Shimla-based veteran journalist. Views expressed are personal.)
