Explained: Himachal's financial woes and efforts to regain fiscal control

Himachal Pradesh government has revoked pensions for disqualified MLAs, withdrawn subsidies, and adjusted salary and pension payments to save costs amid mounting debt and fiscal pressures

Himachal Pradesh is facing a significant economic crisis, and the state government, led by Chief Minister Sukhvinder Singh Sukhu, is moving quickly to enforce fiscal discipline. In an attempt to alleviate financial distress, the Himachal Pradesh Legislative Assembly on Wednesday (September 4) approved a Bill aimed at curbing party defections by withdrawing the pension benefits of disqualified members.

Chief Minister Sukhu introduced the Himachal Pradesh Legislative Assembly (Allowances and Pension of Members) Amendment Bill, which stipulates that any MLA disqualified under the anti-defection law (Tenth Schedule of the Constitution) will lose their entitlement to a pension. Additionally, provisions have been made to recover pensions already received by those disqualified, as reported by The Indian Express.

At present, MLAs who serve a full term of five years are eligible for a monthly pension of Rs 36,000, with Rs 1,000 added for every additional year. The anti-defection law, established in 1985, was designed to prevent elected representatives from switching parties mid-term.

Earlier this year, in February, six Congress MLAs were disqualified under the anti-defection law for violating the party whip during budget discussions.

Subsidies withdrawal for fiscal prudence in Himachal

Himachal Pradesh's Chief Minister, Sukhvinder Singh Sukhu, has recently initiated efforts to withdraw what he considers unnecessary subsidies and freebies, as part of broader fiscal discipline measures. The state government announced plans to remove subsidies benefiting hotels and commercial establishments, including electricity subsidies. Sukhu’s statement has sparked debate not only within political circles but also among trade and industry groups in the state.

In his recent address, Sukhu highlighted that the previous BJP-led government had introduced several freebies, such as free electricity for taxpayers and free bus travel for women on 3,000 state-run buses, ahead of the 2022 Assembly elections. The Congress government now plans to revoke these subsidies. Notably, electricity subsidies for hotel owners will be eliminated, while a 50 per cent bus fare subsidy for women will remain.

Additionally, the Himachal Pradesh government has decided to roll back the BJP’s policy of providing free water supply.

Adjustments in salary and pension payment dates

In a bid to manage the state’s finances more efficiently, Chief Minister Sukhu announced on September 4 that salaries for government employees would now be paid on the 5th of each month, and pensions for retirees would be disbursed on the 10th. The change in payment dates is aimed at better aligning expenditures with revenue inflows, particularly the receipt of central government funds. The state receives a Rs 520 crore revenue deficit grant on the 6th of each month and Rs 740 crore from central taxes on the 10th.

Speaking in the Himachal Pradesh Assembly, the Chief Minister explained that the previous practice of disbursing salaries and pensions on the 1st of each month forced the state to take loans at high interest rates, resulting in unnecessary financial strain. By adjusting the payment dates, the government expects to save approximately Rs 3 crore in interest payments each month. The change will not apply to employees of government boards and corporations.

Himachal Pradesh’s worry of emptying coffers

Himachal Pradesh, a swing state that saw a shift from BJP to Congress in the 2022 elections, has been grappling with mounting financial liabilities. The state’s outstanding debt has risen from 37 per cent of Gross State Domestic Product (GSDP) to an estimated 42.5 per cent in 2024-25. The fiscal deficit more than doubled from three per cent in FY22 to 6.5 per cent in FY23, before settling at 5.9 per cent in FY24 and is expected to further reduce to 4.8 per cent in FY25.

The increased burden of salaries and pensions has contributed significantly to the state's expenditures, with salaries now accounting for 30.2 per cent of total spending, up from 27.2 per cent in previous years, according to a report by India Today. Pensions have similarly increased, constituting 16.3 per cent of total expenditure in 2022-23, up from 13.6 per cent. Meanwhile, interest payments have also risen, although subsidies saw a slight decline.

The state’s financial strain has led to cuts in various sectors. Spending on urban development dropped by 32 per cent, while social welfare, agriculture, and water supply saw reductions of 15 per cent, nine per cent, and 13 per cent, respectively. On the other hand, budgets for irrigation, rural development, education, and police were increased.