The government of Himachal Pradesh has raised concerns over growing fiscal pressure after the Union government decided to discontinue the Revenue Deficit Grant (RDG). Chief Minister Sukhvinder Singh Sukhu has warned that reduced central assistance is widening the state’s revenue gap at a time when expenditure commitments remain high.
In a communication to Union Finance Minister Nirmala Sitharaman, the Chief Minister stated that the formula used by the Finance Commission does not adequately account for the structural challenges faced by small hill states. He argued that applying uniform fiscal benchmarks to all states overlooks the higher costs of infrastructure development, healthcare delivery, and connectivity in mountainous regions.
State officials noted that the gradual reduction of the Revenue Deficit Grant during the current Finance Commission cycle, along with the end of the GST compensation regime, has significantly reduced fiscal flexibility. With limited industrial activity and a strong dependence on central transfers, Himachal continues to face structural revenue constraints.
The state government also highlighted that a large portion of the budget is spent on salaries, pensions, interest payments, and welfare schemes, leaving limited resources for development spending. The Chief Minister has urged the Centre to reconsider the RDG allocation formula and provide special financial support to hill states facing unique geographic and economic challenges.
The issue comes at a time when Himachal Pradesh is already grappling with tight borrowing limits and fiscal deficit targets, prompting the state to seek a more flexible and equitable financial framework from the Union government.
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