Himachal's Budget strained by high committed spending: Indi-Ra report

Himachal Pradesh's revenue deficit is expected to be around 30 basis points higher than the budgeted 2.5% of gross state domestic product (GSDP) in FY26

An India Ratings (Ind-Ra) report has raised concerns over Himachal Pradesh’s fiscal position, stating that the state’s fiscal ratios in the FY26 Budget appear to be understated.

 

Himachal Pradesh's revenue deficit is expected to be around 30 basis points (bp) higher than the budgeted 2.5 per cent of gross state domestic product (GSDP) in FY26. According to Paras Jasrai, Senior Analyst & Economist at Ind-Ra, this increase is due to “optimistic assumptions regarding own tax revenues in FY26.”

 

“The fiscal deficit is expected to be roughly 30bp higher than the budgeted level of 4.0 per cent of GSDP in FY26,” Jasrai added. This would push the fiscal deficit beyond the limits set by the union government, which allows a maximum of 3.0 per cent of GSDP, with an additional 0.5 per cent permitted as an incentive for power sector reforms. 

 

 

Ind-Ra highlights that rising committed expenditure, including interest payments, pensions, and administrative costs, is putting significant pressure on the state's finances. The share of selected committed expenditure in total revenue expenditure has been increasing since FY23. While it fluctuated between 36.0 per cent and 38.5 per cent during FY10-FY23, it is now budgeted at 43.1 per cent in FY26—the highest since FY05. Additionally, committed spending is expected to consume nearly 50 per cent of the state's revenue receipts in FY26, signaling a deteriorating fiscal position.

 

Himachal's capex declining?

 

The state’s fiscal strain is further reflected in its capital expenditure (capex), which has been reduced to a record low of 1.6 per cent of GSDP for FY26. Ind-Ra warns that “a rising committed expenditure along with lower capex would make it difficult for the state to sustain its already high debt levels in the medium to long term.”

 

The fiscal pressure has intensified due to a sharp increase in expenditure compared to revenue in FY25. Himachal Pradesh’s total expenditure in the FY25 revised estimate (RE) was Rs 6,180 crore higher than in the FY25 Budget Estimate (BE), while total receipts increased by only Rs 1,550 crore. The state's own tax revenues declined by Rs 1,570 crore, although tax devolution, non-tax revenues, and grants from the union government helped offset some of the shortfall. 

 

“The revenue deficit of the state increased 80bp to 2.8 per cent of GSDP in FY25 (RE) from BE,” Ind-Ra noted. The fiscal deficit is estimated at 6.6 per cent of GSDP in FY25 (RE), up from 4.8 per cent in the Budget Estimates. However, based on monthly state accounts, Ind-Ra believes the actual fiscal deficit could be closer to 5.0 per cent of GSDP, as the revised expenditure targets may not be fully met.

 

With debt rising and capex shrinking, Ind-Ra cautions that Himachal Pradesh’s fiscal sustainability remains under serious strain.