Fiscal Stress in Himachal Pradesh: Post-Pandemic Challenges

Key Highlights

• Himachal Pradesh's fiscal stress has been building since the pandemic, with rising committed expenditure colliding with weak revenue growth and higher spending on subsidies.
• The state's total expenditure surged to Rs 50,305 crore in 2020-21, with spending priorities shifting toward welfare and support measures.

Post-Pandemic Fiscal Trends

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• The fiscal deficit widened beyond 4 percent of GSDP, compared with 3.4 percent before the pandemic, while outstanding liabilities rose sharply from around 33 percent to over 40 percent.
• Pensions and subsidies have emerged as the biggest pressure points, with the state's pension bill nearly doubling to over Rs 10,000 crore by 2025-26.

Pressure Points: Pensions and Subsidies

• The decision to revert to the Old Pension Scheme (OPS) in 2023 is expected to add further pressure once more employees under the earlier NPS begin retiring.
• Subsidies have expanded significantly, rising from around Rs 1,068 crore pre-pandemic to over Rs 2,152 crore in FY25.

Fiscal Squeeze and Capex Cuts

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• Committed expenditure, covering salaries, pensions, and interest payments, has surged, and is now estimated to account for nearly 69 percent of total expenditure by FY27.
• Capital expenditure is projected to fall sharply to Rs 3,090 crore in FY27 compared with Rs 5,000 crore average over the last seven years.

Revenue Mobilisation and Fiscal Deficit

• Himachal Pradesh financed just over a third of its revenue expenditure through its own revenues in FY25, compared with a national average of about 55 percent.
• The fiscal deficit, now above 6.6 percent of GSDP, remains well beyond the recommended 3 percent threshold.

Limited Relief from Incremental Measures

• A Rs 5 per litre fuel cess is expected to generate only about Rs 800 crore, based on annual fuel consumption of a little over 1.4 billion litres of petrol and diesel.