Himachal Pradesh currently has one of the highest debt loads of any state in India according to a recent report presented to the 16th Finance Commission. With total fiscal liabilities of Rs. 86,589 crore, the state ranks 4th amongst all states for debt burden. Simply paying interest on existing loans will require Rs. 44,617 crore over the next five years.
The debt situation has steadily worsened over time. Fiscal liabilities stood at Rs. 54,299 crore in 2018-19 but have grown by over 60% to the current level. If no changes are made, liabilities are projected to reach Rs. 1,07,230 crore by 2024-25. This points to a fiscal crisis given Himachal's limited means to generate revenue compared to other states.
Most of the debt can be attributed to loans for ongoing development works as well as meeting large salary and pension obligations. The state government has very little funds left for new infrastructure projects after paying interest and existing commitments. In its report, the state government urged the Finance Commission to recognize this debt stress and recommending appropriate relief.
Specific relief sought includes waiver of outstanding interest owed to the central government and converting those loans to interest-free status. Given its hilly terrain and low population density, Himachal requires special consideration and debt relief to protect its development from stalling due to unsustainable debt levels. The large debt-GSDP ratio of 39% also jeopardizes continued progress on key human development indicators.
Going forward, the state's finances will depend greatly on the recommendations of the 16th Finance Commission. Without meaningful debt relief, Himachal Pradesh's fiscal situation will only deteriorate further in coming years despite the best efforts of successive governments. The debt burden may even surpass one trillion rupees by 2024-25 if relief is not provided.
