Himachal Pradesh today finds itself caught in a financial quagmire, raising the unsettling question: is the hill state inching towards fiscal collapse?
Mounting debt, delayed Central assistance, curtailed overdraft facilities and growing difficulties in paying salaries and pensions have created a cocktail of crises rarely seen in this peaceful Himalayan region. Repeated natural disasters have only worsened the situation, while political blame games between the Congress government in Shimla and the BJP-led Centre add fuel to the fire.
Disaster and distress
According to the State Emergency Operation Centre (SEOC), Himachal has witnessed 45 cloudbursts, 95 flash floods and 135 landslides, leaving 335 dead – including 166 from rain-related calamities such as landslides, drowning and electrocution and 154 from road accidents. Losses are pegged at over Rs 4,000 crore, with rainfall at 703.7 mm, 22 per cent above the seasonal average. Yet while Uttarakhand quickly received Rs 20 crore in relief, Himachal had to wait – even after cloudbursts claimed lives and destroyed infrastructure.
The Centre eventually released Rs 198.80 crore as the first instalment of an SDRF package worth Rs 441.60 crore. But the state had already diverted nearly Rs 6,000 crore from its 2023 budget, slashing development spending. A reconstruction package of Rs 2,006.40 crore was approved in June 2025 by a high-level committee chaired by Union Home Minister Amit Shah – but its two-year delay blunted the urgency of relief. For many, this contrast reinforced the perception that politics, not humanitarian need, guides allocations.
Future strategy: Avoiding the fiscal cliff
To avert deeper distress, Himachal Pradesh requires coordinated measures. The Centre should restore the overdraft facility, easing limits to give the state breathing space to meet short-term liabilities without political interference. Debt restructuring through RBI negotiations could lead to longer repayment schedules and lower interest rates, freeing resources for development. Diversifying revenue streams through eco-tourism, surplus hydropower export and small industry growth can broaden the revenue base. Rationalising expenditure by cutting subsidies and non-productive spending can redirect funds to essential services and disaster resilience. Federal fairness is also crucial, with disaster-hit states treated equitably regardless of the ruling party. By adopting these measures, Himachal Pradesh can mitigate financial distress and build a resilient future. Coordinated efforts are essential to address the state’s financial challenges and ensure sustainable development.
When overdrafts dry up
The crisis deepened when the Centre reduced Himachal’s overdraft facility, crippling its ability to pay salaries and pensions – the most basic duty of governance. With limited revenue streams – excise, tourism, hydropower and central devolution – the state has little cushion against fiscal shocks. Defaulting on salaries within months is now a real possibility, raising the spectre of a constitutional financial emergency.
Himachal’s structural weakness lies in its rising debt, now over Rs 1 lakh crore. Recently, the state floated borrowings worth Rs 1,500 crore through RBI securities, permissible only with Central consent under Article 293(3). Semi-annual interest obligations stretching into 2035 and 2040 will burden future governments.
With most revenues consumed by debt servicing, fiscal manoeuvrability shrinks each year. The overdraft facility has been squeezed to just Rs 300 crore – barely enough for four months of obligations. This foreshadows a bigger crisis: the inability to pay salaries and pensions on time.
Federal fault lines
The Himachal case highlights strains in India’s fiscal federalism. Smaller hill states face disproportionate pain from delays in tax devolution, GST compensation and disaster aid. Opposition-ruled states such as West Bengal, Kerala and Himachal often allege discrimination. By curbing overdraft access and delaying relief, critics argue, the Centre is scripting a credibility crisis for the Congress government in Shimla.
Governance paralysis
Over two lakh employees and 1.7 lakh pensioners depend on the state exchequer. Any delay in payments will spark protests, lower morale among frontline workers in health, education and policing and paralyse essential services. Development projects already stalled by the fund crunch risk suspension, feeding the perception of a collapsing administration.
The financial storm is set to dominate Himachal’s politics. The BJP is seizing the chance to project Congress mismanagement, while the Congress accuses the Centre of “step-motherly treatment.” The real sufferers, however, are employees waiting for salaries, farmers needing relief and disaster-hit families awaiting rehabilitation.
If salary delays snowball into unrest, public anger could target not just the state government but also Delhi. Ironically, Congress may have already been handed a potent poll slogan: accusing the Centre of withholding fair assistance, a charge that BJP governments too once levelled.
Conclusion: Warning signal
Is Himachal heading towards fiscal collapse? Not yet – but the warning lights are flashing. A debt-heavy state, denied timely relief and struggling to meet basic obligations cannot sustain itself without systemic reform and a fair federal compact.
If politics continues to override fiscal justice, Himachal could become India’s first test case for a financial emergency – a precedent disastrous for democracy and devastating for its people. The lesson is clear: when states stumble, the Union itself is weakened.