Discontinuation of Revenue Deficit Grant May Force Himachal to Roll Back Subsidies and Freeze Allowances

The Himachal Pradesh government might need to make difficult decisions if the revenue deficit grant (RDG) is discontinued. These measures could include cutting subsidies, abolishing unfilled positions from the last two years, and freezing dearness allowance and relief arrears. A senior official highlighted these potential actions on Monday.

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The state's financial situation was detailed in a presentation by Principal Secretary Finance Devesh Kumar. It suggested that losing the RDG could lead to the removal of subsidies for the Himachal Road Transport Corporation (HRTC) and on essentials like ration, electricity, water, and garbage bills. However, these are recommendations from the finance department, with the final decision resting with the state government.

Impact on State Budget

The Chief Minister noted that the proposed RDG withdrawal of Rs 37,199 crore would heavily affect Himachal Pradesh's annual budget. Currently, 12.7 percent of the state's budget relies on this grant. The state's revenue stands at Rs 41,950 crore, including Rs 18,000 crore from state resources, Rs 13,950 crore from central taxes, and Rs 10,000 crore in borrowings. However, committed expenditures total Rs 48,000 crore, leaving a gap of Rs 6,050 crore.

The presentation also highlighted that without RDG support, the state might not settle pay or pension revision arrears amounting to Rs 8,500 crore. Additionally, it may struggle to handle dearness allowances and relief totaling Rs 5,000 crore or release further DA and DR installments.

Potential Changes in Pension Schemes

If RDG is halted, Himachal Pradesh may need to transition from the Old Pension Scheme (OPS) to the Unified Pension Scheme (UPS). This shift could unlock an additional borrowing capacity of Rs 1,800 crore currently restricted by the Centre following OPS restoration.

Moreover, without RDG support, clearing pending liabilities related to schemes like Himcare and Sahara could become challenging. The state faces a liability of Rs 1,000 crore due to court orders that may remain unresolved if funding is cut.

In response to these financial challenges, recommendations include abolishing vacant posts from the past two years and downsizing or closing at least 30 percent of institutions. Additionally, halting new pay commissions and pay revisions are considered necessary steps.

These potential measures reflect the significant impact that losing RDG would have on Himachal Pradesh's finances. The state government must weigh these recommendations carefully as they decide on future actions.

With inputs from PTI