86% of Himachal’s Revenue Goes to Salaries, Pensions and Subsidies, CAG Flags Fiscal Strain
Himachal Pradesh’s finances are facing mounting pressure, with the Comptroller and Auditor General of India (CAG) flagging breaches of prescribed deficit limits, rapidly rising liabilities, high committed expenditure and inadequate room for capital investment during 2024-25. The latest audit findings show that while the state economy continued to grow, a disproportionately large share of its revenue was absorbed by salaries, pensions, gratuities and subsidies, leaving limited resources for infrastructure and development.
According to the CAG report tabled in the Assembly by Chief Minister Sukhvinder Singh Sukhu, the state’s revenue deficit stood at ₹6,804.61 crore, or 2.94% of GSDP, while the fiscal deficit reached ₹12,611.05 crore, or 5.44% of GSDP. Both exceeded the limits prescribed under the Fiscal Responsibility and Budget Management (FRBM) framework.
The report’s biggest concern is the composition of expenditure. About 86% of total revenue receipts was spent on salaries, pensions, gratuities and subsidies, while salaries and pensions alone consumed nearly 70%. Consequently, only around 14% remained for infrastructure development and capital investment. The CAG also questioned rising expenditure on electricity subsidies and debt-relief measures, warning that such recurring commitments could further restrict developmental spending.
The debt burden has meanwhile crossed the ₹1 lakh crore mark. Internal liabilities rose to ₹67,448.38 crore by March 31, 2025, increasing 9.78% in a year, while total liabilities reached ₹1,04,410.57 crore. The situation follows earlier warnings: in 2023-24, the fiscal deficit was 5.43% of GSDP and the debt-to-GSDP ratio stood at 43.98%, against a prescribed target of 38.98%.
The state’s fiscal deterioration is particularly notable because Himachal had recorded a ₹1,137 crore revenue surplus in 2015-16, when its fiscal deficit was 1.96% of GSDP. Revenue deficits have since returned and persisted. Under the 15th Finance Commission, Himachal was allocated ₹37,199 crore in Revenue Deficit Grants for 2021-26, but the 16th Finance Commission has not recommended such grants for 2026-31, increasing pressure on the state to strengthen its own revenues and control expenditure.
Budget management has also come under criticism. In 2024-25, expenditure exceeded Assembly-approved limits by ₹3,102.88 crore, including ₹2,552.63 crore under the Finance Department. Another ₹438.66 crore was spent without budgetary provision. Conversely, ₹673.11 crore allocated for 14 schemes remained entirely unspent, while supplementary provisions worth ₹1,575.44 crore were deemed unnecessary.
The CAG also flagged milk cess, environment cess and Building and Other Construction Workers’ Welfare Cess being kept outside government accounts, contrary to Article 266 of the Constitution, besides delays in utilisation certificates.
Despite these concerns, Himachal recorded 9.20% economic growth in 2024-25. However, its contribution to India’s GDP was only 0.70% and has declined over five years. GST and central-tax shares increased 4.34%, while non-tax revenue rose 22.40%, but dependence on central grants remains high.
The state’s 2026-27 budget projects a ₹6,577 crore revenue deficit, with committed expenditure estimated at ₹35,641 crore, or 88% of revenue receipts including salaries at 41%, pensions at 29% and interest payments at 18%. With the 16th Finance Commission setting a general 3% fiscal-deficit ceiling for states, the CAG’s warning is clear: Himachal Pradesh needs stronger revenue mobilisation, tighter expenditure control, better budget execution and greater protection for capital investment to restore long-term fiscal stability.