In Himachal, a Fiscal Tug-of-War Over Declining Federal Grant

11 Feb, SHIMLA, India — Himachal Pradesh Chief Minister Sukhvinder Singh Sukhu on Wednesday challenged opposition leaders to lobby the Prime Minister for the reinstatement of the Revenue Deficit Grant (RDG), warning that its planned withdrawal would cost the state approximately ₹10,000 crore annually.

Speaking to reporters after returning from meetings in New Delhi, Sukhu shifted the focus of recent political sparring toward the state’s looming fiscal cliff. Under current projections, the abolition of the RDG would deprive the hill state of vital funds between 2026 and 2031.

“Instead of targeting me, BJP leaders should approach the Prime Minister for the reinstatement of the RDG,” Sukhu said. “I have appealed to them on numerous occasions to come forward together, but I know they will never do so.”

The Chief Minister met with former Union Finance Minister P. Chidambaram in the capital to discuss the 16th Finance Commission’s potential impact. Sukhu noted that Chidambaram, who requested further documentation to escalate the matter, emphasized that the RDG is a constitutional provision under Article 275(1) intended to balance state revenues.

The fiscal dispute highlights a widening gap in federal transfers. Sukhu claimed that while the previous BJP administration received ₹54,296 crore in RDG during its tenure, his government has received only ₹17,563 crore over the past three years.

Debt and Austerity

The Chief Minister used the briefing to provide a grim accounting of the state’s balance sheet, citing debts and outstanding liabilities of salary and pension arrears inherited from his predecessors.

To counter these “hurdles,” Sukhu pointed to several austerity measures:

• Projected Annual Loss (2026-2031): ₹10,000 crore per year if RDG is abolished.
• Inherited Debt Burden: ₹75,000 crore.
• Outstanding Liabilities: ₹10,000 crore (Salary and pension arrears).
• Additional Revenue Generated: ₹3,800 crore (through current reforms).
• National Ecological Contribution: ₹90,000 crore.
• Bureaucratic Downsizing: Reduction of Indian Forest Service (IFS) posts from 110 to 86 and the merging of certain schools and colleges to curb “unproductive spending.”
• Political Leanings: Appointing only half the number of board chairmen compared to the previous administration.

“In five years of the BJP regime, they received nearly ₹70,000 crore,” Sukhu said, referring to combined grants and GST compensation. “Had they repaid ₹40,000 crore of the loans, the state would not have fallen into a debt trap.”

Ecological Leverage

The state’s strategy for financial survival appears to be leaning on its environmental contributions. Sukhu cited a study by the Indian Institute of Forest Management suggesting Himachal Pradesh contributes nearly ₹90,000 crore in ecological value to the national economy.

Despite the fiscal crunch, the Chief Minister noted that the state has begun clearing pension arrears for those aged 70 and above, as well as gratuity payments for retired Class-IV employees.

“We have a legitimate right on the resources of our state,” Sukhu said, “and we will fight for them.”

Comparative Financial Grant: Current vs. Previous Administration