Himachal Pradesh Budget: Limited Fiscal Space To Increase Capital Outlay

Himachal Pradesh Chief Minister Jai Ram Thakur presented the last budget of his government’s term on March 4 before the elections later this year. The budgetary projections for next year indicate a potential breach of the 4% fiscal deficit target and a steady increase in the state’s committed expenditure.

In 2022-23, Himachal Pradesh is estimated to spend 77% of its revenue receipts on committed expenditure items — salaries, pension and interest. In the last five years, committed expenditure has been between 65% and 70% of revenue receipts. This is expected to increase further to 87% in 2025-26.

The rising committed expenditure leaves less fiscal space for capital allocation towards creation of assets. The capital outlay for the current fiscal year is expected to be 18% higher than budgeted at Rs 7,099 crore. However, for 2022-23, the capital outlay is projected at Rs 5,647 crore, which is 20% lower than the current year’s revised estimate.

For the current year, the revised fiscal deficit is projected at 4.05% of GSDP, in line with the 4.5% limit prescribed by the Centre.

However, the fiscal deficit for 2022-23 is projected to be 4.98% of GSDP at Rs 9,602 crore. This is higher than the 4% limit permitted by the central government for the next financial year. The medium term fiscal plan presented along with the budget shows a further increase in the deficit to 7.5% of GSDP in 2025-26.

The GST compensation guarantee from the Centre helped states achieve 14% compounded annual growth in their GST revenue for the last five years.

Himachal Pradesh’s reliance on the Centre for the GST compensation has steadily increased in the last three years from 36% of its own tax revenue in 2018-19 to 48% in 2020-21.

For the current year, Himachal Pradesh is estimated to receive 28% of its own tax revenue as GST compensation. The state could see a decline in receipts in 2022-23 after the GST compensation guarantee ends in June 2022.

The Mukhya Mantri Shahri Aajeevika Guarantee Yojana was announced during the pandemic in May 2020. It promised 120 days of guaranteed wage employment to every household in urban areas in 2020-21. It was extended to the next financial year in April 2021.

The scheme has now been further extended to 2022-23.

In the budget speech, the Chief Minister announced that a bill guaranteeing employment for urban unemployed youth will be introduced in this session. The creation of a similar urban employment guarantee scheme was announced in the Rajasthan government’s budget this year in February.

The honorarium payment for ASHA workers will be increased by Rs 1,825 per month. The honorariums for Anganwadi workers, mini-Anganwadi workers, and Anganwadi helpers will be increased by Rs 1,700 and Rs 900 and Rs 900 respectively.

A scheme to promote drones and drone flying schools 'Governance and Reforms using Drones’ is proposed to be launched. Four flying schools for drone training will be set up in 2022-23.

This is part of a series of articles authored by PRS Legislative Research, bringing attention to the priorities laid down by states in their budgets. Read the full article on the Himachal Pradesh budget on the PRS Legislative Research website.