After Karnataka, Congress-led Himachal Pradesh is grappling with a severe economic crisis amidst a spate of promises under ‘Khata Khat’ schemes pending. In response, Chief Minister Sukhvinder Singh Sukhu has announced that he, along with other ministers and chief parliamentary secretaries, will forgo their salaries and allowances for the next two months. This decision, taken in light of the state’s current economic predicament, is being presented as a gesture to show solidarity with the people and help mitigate the financial challenges. However, this crisis has largely been exacerbated by the Congress party’s rapid political manoeuvres and promises that now seem untenable.
During a press conference on August 29, 2029, CM Sukhu explained, “After discussions in the cabinet, all members have decided not to take their salaries, DA, or TA for the next two months. The CPS colleagues have also agreed to this request, deciding not to take any salary or TA-DA for the next two months. This is a small amount, but its significance is great. I have also made the same request to all the MLAs.”
He further elaborated that the decision was aimed at ensuring that the economic recovery continues without disruption. Despite these declarations, the state’s financial woes remain dire. Under the Congress government, which came to power two years ago, continuous borrowing has failed to resolve the state’s problems. In fact, the situation has deteriorated to such an extent that even state government employees’ salaries are being delayed.
A State Reeling Under Economic Crisis
While the Chief Minister’s decision to give up his salary might be seen as an act of solidarity, it is unlikely to have any meaningful impact on the underlying economic issues. The fundamental problem lies in the hurried political strategies and populist promises made by the Congress government when they assumed power under their famous “Khata Khat” promises.
These included providing free electricity, a monthly stipend of Rs 1,500 to women aged 18 to 60, and the restoration of the Old Pension Scheme (OPS) for state employees. All these promises are now coming back to haunt the state government. Himachal Pradesh, a small state with limited sources of income, relies heavily on its own revenues and central government assistance to cover its expenses. To bridge the remaining deficit, the state has resorted to borrowing. This has led to an increase in debt, to the point where new loans are now required just to pay off old ones.
The gravity of the state’s economic condition is evident from its 2024-25 budget. The Sukhu government presented a budget of Rs 58,444 crore for the financial year, which includes a fiscal deficit of Rs 10,784 crore. A significant portion of the budget is allocated to repaying old debts and covering the pensions and salaries of state employees. Specifically, Rs 5,479 crore is earmarked for repaying old loans, and Rs 6,270 crore is for interest payments on these loans, collectively consuming about 20 per cent of the total budget.
Additionally, the government plans to spend Rs 27,208 crore on salaries and pensions, bringing the total expenditure on loans, interest, salaries, and pensions to Rs 38,957 crore, which is about 66 per cent of the total budget. Excluding new loans, this figure rises to 80 per cent, leaving the state with minimal flexibility to allocate funds for other expenditures.
Furthermore, Himachal Pradesh is expected to spend approximately Rs 1,200 crore on subsidies in 2024-25. While this may appear modest, it is significant for a state in an economic crisis. The largest subsidy expenditure is for electricity, which has become a major financial burden on the state.
Factors Contributing to the Economic Crisis
The current economic crisis in Himachal Pradesh can be attributed to several factors. One key reason is the government’s lack of focus on developing new revenue sources. Moreover, in line with its electoral promises, the government reinstated the OPS, resulting in reduced financial assistance from the central government.
The situation has become so dire that the state government has even requested the return of funds deposited in the National Pension System (NPS). At the same time, the government is providing Rs 1,500 to women in the state, further straining the budget, and is also offering 125 units of free electricity, adding to the state’s financial burden.
Challenges Ahead
The state government’s recent revelations indicate that pension expenditures will reach Rs 19,728 crore by 2030-31, up from less than Rs 10,000 crore currently. Between the fiscal years 2026-27 and 2030-31, Himachal Pradesh is expected to spend a total of Rs 90,000 crore on pensions. There are concerns that fulfilling the Congress’s promise of OPS could lead to significant cuts in the state’s budget for other developmental projects. The share of pensions in the state’s budget, which was previously 13 per cent, will increase to 17 per cent after the implementation of OPS. This expenditure will almost equal the amount spent on salaries for state government employees.
By 2026-27, the state government is projected to spend Rs 20,639 crore on employee salaries and Rs 16,728 crore on pensions. Additionally, the number of pensioners in the state is expected to exceed the number of working employees in the coming years. By 2030-31, there will likely be 2.38 lakh pensioners in the state, outnumbering state employees, as approximately 10,000 employees retire annually with no new hirings.
Over the period from 2026-27 to 2030-31, the total expenditure on salaries and pensions is expected to reach Rs 2.11 lakh crore. Given the state’s economic situation, it is anticipated that Himachal Pradesh will not be able to bear this burden alone and will require special financial assistance.
During the 2022 Himachal Pradesh assembly elections, the Congress party aggressively campaigned on the promise of restoring the OPS, using it as a key political tool. However, the financial strain resulting from this commitment is now evident, placing severe pressure on the state’s economy.
Escalating Debt Crisis
The aggressive borrowing by the Congress government has further compounded the state’s economic woes. Himachal Pradesh’s debt currently stands at over Rs 88,000 crore. In the past 18 months, the Congress government has added around Rs 19,000 crore to this debt. A response in the Lok Sabha indicates that by the end of the financial year 2024-25, the state’s debt is expected to exceed Rs 94,000 crore.
Chief Minister Sukhvinder Singh Sukhu himself has admitted that the state is borrowing new loans merely to repay old ones. The debt has now reached over 40 per cent of the state’s GDP, and the fiscal deficit is around 5 per cent of GDP. Ideally, a state’s debt should not exceed 20 per cent of its GDP, and the fiscal deficit should be kept below 3 per cent, according to fiscal prudence regulations.
What happened in Karnataka?
The “Khata Khat” schemes introduced by Congress in Karnataka have significantly strained the state’s financial resources and exposed the party’s inability to deliver on its promises. During the Karnataka Assembly elections of 2023, the INC made several ambitious commitments to win votes. However, the party’s lack of a concrete plan to fulfil these promises became evident once it assumed power. Chief Minister Siddaramaiah’s candid admission on the legislative floor that not all pre-election promises are meant to be implemented underscores the party’s approach to governance—often characterised by lofty rhetoric but limited in actionable outcomes.
Financial Burden of the Five Guarantees
The INC’s “Five Guarantees” were ambitious welfare promises, including 200 units of free power supply, a monthly allowance of Rs 2,000 for the woman head of every family, 10 kg of free rice for each member of a Below Poverty Line (BPL) family, stipends for unemployed graduates and diploma holders, and free bus rides for women in state-run buses. While these initiatives were aimed at garnering public support, their implementation has proven to be financially unsustainable.
The Congress government’s delays in rolling out these schemes are attributed to the significant burden they place on the state exchequer. The cost of providing free power, rice, and allowances amounts to a substantial portion of the state’s budget, resulting in cuts to other essential services and development projects. Additionally, the government pledged to increase reservations for various communities, a politically charged move that required constitutional amendments and further bureaucratic manoeuvring.
Impact on Public Services and Economy
The introduction of free bus rides for women has led to overcrowding in state-run buses, causing inconvenience to male passengers and disruptions at pilgrimage centers, where free food services have been curtailed due to the influx of pilgrims. Moreover, the implementation of welfare guarantees has adversely impacted the farming economy. The state’s labour market has been severely disrupted as many potential workers opted for the government’s freebie programs, leading to a shortage of agricultural labour and an increase in daily wages. Farmers like SG Govindappa from Tumakuru district have expressed concerns about the sustainability of farming under such conditions, with fears that continued freebies could push small and medium farmers out of agriculture altogether.
A Pattern of Unfulfilled Promises
The Congress party’s track record in Karnataka reflects a broader trend of over-promising and under-delivering whenever it assumes power. The party often prioritises appeasement policies that do not necessarily contribute to sustainable development. This approach undermines public trust and contributes to a growing perception that the Congress is more interested in retaining power than in fostering inclusive growth and security.
The “Khata Khat” schemes have become a symbol of the Congress’s governance style in Karnataka—one characterised by unfulfilled promises and financial mismanagement. Rather than focusing on comprehensive development or forward-thinking economic strategies, the Congress appears mired in divisive tactics that prioritise vote-bank politics over the state’s long-term interests. This has resulted in a weakened state economy, overburdened public services, and growing public dissatisfaction.
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