Himachal Pradesh Financial Crisis: Debt Crosses ₹1 Lakh Crore, RDG Withdrawal Hits State Hard

February 9, 2026

A financial emergency-like situation has arisen in Himachal Pradesh. The state’s policy of moving forward with debt appears to be proving costly. The situation has become such that even new loans are falling short of repaying old debt. In the upcoming financial year 2026-27, Himachal will receive a new loan of approximately ₹10,000 crore.

Loans Fall Short of Debt Repayment

But approximately 13,000 crore rupees will have to be spent on interest and repayment of old loans. This means that 3,000 crore rupees more will be spent on repaying old loans than the loan amount received.

This situation arose due low Income Than Expenditure. This is worsening the state’s financial situation daily. The small state of Himachal Pradesh has accumulated a debt of over 1 lakh crore rupees. At this time, the central government’s decision to discontinue the Revenue Deficit Grant (RDG) has pushed Himachal into a financial emergency.

This is putting pressure on employees, pensioners, the unemployed, and the common man. Employees and pensioners are worried about their arrears, DA, and the new pay commission. The unemployed are worried about jobs, and the common people are worried about the end of subsidies.

Income vs. Expenditure: Zero Growth and Deficit Despite Abolition of Subsidies

According to Finance Secretary Devesh Kumar, even if the government stops all subsidies in 2026-27 and spends zero on development works (capital expenditure), the total expenditure will still be around Rs 48 thousand crore. In comparison, the state will have an income of only about Rs 42 thousand crore from various resources.

This includes 10,000 crore rupees in loans, 14,000 crore rupees in central tax share, and 18,000 crore rupees in state revenue. Still, there will be a direct deficit of 6,000 crore rupees.

RDG shutdown: The biggest blow

At the root of this financial crisis is the discontinuation of the Revenue Deficit Grant (RDG). This grant was considered a lifeline for mountainous and resource-limited states like Himachal. RDGs have been discontinued for 17 states across the country, but Himachal Pradesh’s dependence on it was the highest. After Nagaland, Himachal Pradesh was the second state in the country, with approximately 13 percent of its total budget coming from the RDG.

Had this grant continued as before, it could have balanced a significant portion of the revenue-expenditure gap. Its sudden discontinuance has disrupted the state’s cash flow.

Attempts to increase income, but no success

The state government attempted to generate additional revenue by imposing a water cess, but the Supreme Court declared it unconstitutional. The implementation of GST has limited the state’s ability to levy independent taxes. While raising taxes on alcohol has generated some additional revenue, it remains insufficient to meet rising expenses.