The mountain of debt on Himachal Pradesh, surrounded by mountains, is increasing. The economic condition is deteriorating so much that for the next two months, the Chief Minister, Ministers, Chief Parliamentary Secretary and Chairman of Board Corporations will not take salary and allowances. Chief Minister Sukhvinder Singh Sukhu said on Thursday that the financial condition of the state is not good, so he and his ministers are giving up salary and allowances for two months.
The Congress government that came to power in Himachal about two and a half years ago is continuously sinking in debt. The freebies being distributed by the government are being blamed for the economic crisis in Himachal. During the assembly elections held two and a half years ago, Congress had promised many free schemes. After forming the government, these promises were fulfilled, which further increased the debt.
According to the Reserve Bank report, before the Congress came to power in Himachal, the debt was less than Rs 69 thousand crores till March 2022. But after it came to power, the debt increased to more than Rs 86,600 crores by March 2024. By March 2025, the debt on the Himachal government will increase further to about Rs 95 thousand crores.
Freebies turned costly!
Congress had made many big promises to return to power in the 2022 elections. After coming to power, lavish spending is being done on these promises. 40 percent of the Himachal government’s budget is spent on paying salaries and pensions. About 20 percent is spent on paying loans and interest.
Sukhu government gives Rs 1500 to women every month, on which Rs 800 crore is spent annually. Old pension scheme has also been implemented here, which has increased the expenditure by Rs 1000 crore. Whereas, Rs 18000 crore is spent annually on free electricity. The government is spending about Rs 20000 crore on these three schemes alone.
Himachal government got another shock when the central government reduced the limit of borrowing. Earlier, Himachal government could borrow up to 5 percent of its GDP. But now it can borrow only up to 3.5 percent. That is, earlier the state government could borrow up to Rs 14,500 crore, but now it can borrow only Rs 9,000 crore.
RBI report shows that Himachal’s debt has increased by Rs 30 thousand crores in five years. Currently, the debt is more than Rs 86 thousand crores. Every person in Himachal has a debt of Rs 1.17 lakh.
Will two months’ salary do anything?
If the Chief Minister, Ministers and Parliamentary Secretaries in Himachal do not take their salary and allowances for two months, it will not make much difference. This will be like ‘a drop in the ocean’.
The Chief Minister gets Rs 2.5 lakh as salary and allowances every month. It is Rs 5 lakh in two months. There are 10 ministers in the Himachal government and they also get Rs 2.5 lakh every month. Rs 50 lakh is spent on the salary and allowances of these ministers in two months. There are 6 parliamentary secretaries, who also get Rs 2.5 lakh per month. Rs 30 lakh is spent on the salary and allowances of 6 parliamentary secretaries in two months.
That is, if the Chief Minister, Ministers and Parliamentary Secretaries do not take salary and allowances for two months, then a total saving of Rs 85 lakh will be there. Whereas, Himachal government will have a debt of about Rs 95 thousand crore by March 2025.
Not only Himachal, the condition of others is also the same
It is a simple math. If the income is less and the expenses are more, then you will have to take a loan. But if the expenses and loans are not managed properly, then the situation may be such that neither will there be any source of income left nor will you be able to take a loan.
The debt on state governments is continuously increasing. Governments are spending recklessly on freebies in the name of subsidy. An RBI report shows that the expenditure of state governments on subsidy is continuously increasing. State governments had spent 11.2% of the total expenditure on subsidy, while in 2021-22 it spent 12.9%.
In this report of RBI titled ‘State Finances: A Risk Analysis’, which came in June 2022, it was said that now the state governments are giving freebies instead of subsidies. Governments are spending in places from where no income is being generated.
According to RBI, in 2018-19, all state governments spent Rs 1.87 lakh crore on subsidies. This expenditure increased to over Rs 3 lakh crore in 2022-23. Similarly, till March 2019, all state governments had a debt of Rs 47.86 lakh crore, which increased to over Rs 75 lakh crore by March 2024. This debt is estimated to increase further to over Rs 83 lakh crore by March 2025.
Will the situation worsen further?
Himachal is a great example of how the culture of freebies can bring the government to its knees. Right now the Chief Minister, Ministers and Parliamentary Secretaries have given up their salary and allowances for two months. It is possible that the situation may worsen further.
Last year, RBI had warned that spending on non-essential things can worsen the economic condition of the states. In this report, RBI had warned that Arunachal Pradesh, Bihar, Goa, Himachal, Kerala, Manipur, Meghalaya, Mizoram, Nagaland, Punjab, Rajasthan and West Bengal are facing economic threat.
RBI says that there are some states whose debt may exceed 30% of GSDP by 2026-27. Punjab’s condition will be the worst among them. By that time, the Punjab government may have a debt of more than 45% of GSDP. At the same time, the debt of Rajasthan, Kerala and West Bengal is likely to be up to 35% of GSDP.
Due to high debt, money is not spent at the right place. Governments are not able to spend money on such development projects which can generate income in future. For example, Punjab spends more than 22 percent of its total expenditure on paying interest. Himachal also spends 20 percent on interest and debt repayment. This reduces capital expenditure.
What are freebies?
Such ‘free distribution’ schemes are common in electoral states. Those who oppose them call them ‘freebies’ and ‘rewadi culture’ while those who support them call them ‘welfare schemes’. Those who oppose often say that this will put a burden on the government treasury, the debt will increase and this is being done only for political gain. Those who bring such schemes say that its purpose is to provide relief to the poor people from inflation. The special thing is that the kind of scheme which a party calls ‘rewadi culture’ in one state, the same scheme is being implemented in another state by calling it a welfare scheme.
What are freebies? There is no clear definition of this. But during the hearing in the Supreme Court, the Election Commission had stated in an affidavit that if medicines, food or money are distributed for free during a natural disaster or epidemic, then it is not a freebie. But if this happens on normal days, then it can be considered a freebie.
At the same time, the Reserve Bank of India (RBI) had said that such schemes which weaken the credit culture, worsen prices due to subsidies, lead to a decline in private investment and reduce labour force participation are freebies.
Now the question arises whether freebies and government welfare schemes are the same or different? Usually freebies are announced before elections, while welfare schemes are implemented at any time.
Political parties make a lot of promises to win elections, but this puts a burden on the government treasury. The Supreme Court had also said that freebies being distributed using taxpayers’ money can push the government towards ‘bankruptcy’.
What is the solution?
To boost the dwindling revenues of states, the NK Singh-led 15th Finance Commission has recommended gradual increase in property tax, regular hike in rates for various government services like water, increase in excise duty on liquor and reforms in local bodies and accounting.
Former RBI Governor D. Subbarao had written in an article in the media, ‘Whether it is a private company or the government, the ideal is that any loan should be repaid by generating revenue in the future. On the other hand, if the loan amount is spent on current consumption and there is no impact on future growth, then we are putting the burden of loan repayment on our children. There can be no bigger sin than this.’
In June 2022, RBI in its report has suggested, citing the example of Sri Lanka’s economic crisis, that state governments need to stabilize their debt, as the situation of many states is not a good sign.
RBI suggests that governments should avoid spending money on non-essential places and bring stability in their debt. Apart from this, power companies need to be rescued from losses. It has been suggested that governments should make capital investments so that they can earn from it in the future.
Source (PTI) (NDTV) (HINDUSTANTIMES)