Assembly elections 2017: New HP government will have to reverse last one’s ‘scorched earth policy’
For the new government, a crumbling fiscal structure, a slowdown of development, a shrinking employment market, and a burgeoning revenue expenditure are certainly more formidable challenges than winning the electoral battleopinion Updated: Dec 20, 2017 11:02 IST
With the dust of the electoral battle settling, it is clear that Himachal Pradesh has stuck to its habit of alternating between electing the BJP and Congress to run the state. The BJP has won the battle at the hustings, but it faces a war on the development front. A crumbling fiscal structure, a slowdown of development, a shrinking employment market, and burgeoning revenue expenditure are certainly more formidable challenges than winning the electoral battle.
The outgoing government followed the scorched earth policy in terms of creating huge new revenue expenditure commitments by opening several new institutions whether justified or not. This was adding fuel to the fire as the state’s own tax and non-tax revenues have been grossly inadequate to meet the salary, pension and interest payment commitments.
A sizable portion of the capital receipts is thus likely to be devoted to meeting revenue expenditure commitments. This leads to worsening of the emerging debt trap. On the possibility of resource raising, traditional avenues like hydro-electricity, forests, minerals and tourism have shown deceleration. Hydro-electric generation is on the brink of losing out to solar energy. Forestry revenues will not increase due to environmental reasons. Industrialist lobbies obstruct revision in the rates of royalty on limestone — the principal mineral resource; and, the tourism sector does not contribute something worth mentioning to the State exchequer. Hence its curtains on additional resource raising.
Given these realities, the new government will face a severe crunch of financial resources in the first two years of its term. In the next three, it seems unlikely that the 15th Finance Commissions will afford as liberal a deal as the 14th Finance Commission. The terms of reference of the 15th are pointers to a greater demand of financial discipline on states in general, and on revenue deficit states, like Himachal Pradesh, in particular.
Luckily for Himachal Pradesh, the outgo on subsides is only about 3% of the budget size and the two major subsidies are on domestic electricity consumption and essential commodities like pulses and cooking oil. These could become more targeted by focusing only on economically weaker sections.
The public undertakings without a loss of generality are a burden on public exchequer. The state must disinvest or wind up all loss-making entities.
Rising unemployment among the youth in the state can lead to social discontent. How can the state create adequate employment opportunities in the public sector in future if its coffers are empty and there is little likelihood of its buffering up! The government must create a set of conditions that are conducive to attracting big-ticket private sector investments for growth and employment creations. This is not an easy task because of the inherent disabilities the state suffers. Poor connectivity and non-availability of trained manpower are some of the causes. The hydro-electricity sector offers a remote chance only if the potential allotted to developers is actualised expeditiously. That is a Herculean task given the constraints, obstructions, extortion and inordinately long process for getting a whole host of approvals.
The new government has its task cut out in terms of freeing private investment from the current obstructive and discouraging scenario. A peaceful law and order situation has taken a beating in the last couple of years. The confidence of the public, and that of investors, appears to have been shaken. This must be addressed to promote economic growth as peace and prosperity go hand-in-hand.
The new government must embark upon a very strong consolidation phase towards improving the delivery as also the quality of services it has to provide. This is less expensive and has large positive spin-offs.
DK Sharma is a retired IAS officer of Himachal Pradesh cadre
The views expressed are his personal