Himachal Debt Issue - CAG Report :

1.The Comptroller and Auditor General (CAG) of India has apprehended that Himachal Pradesh may fall into debt trap. Contradicting the claims of Government of taking loans for developmental projects, CAG has said that the State had given less priority to capital expenditure.

2. In its report tabled in Himachal Pradesh Assembly, CAG has said that the financial liabilities of the State had reached 176 per cent of the total revenue receipts of the State.

3. Presenting a dismal picture of the financial health of the State, CAG has said that the fiscal liabilities of Himachal Pradesh have increased to `41,197 crore in 2015-16, registering a growth of 8 percent over the previous year,

4. The State's per capita debt had shown increase from `40,904 in 2011-12 to `57,642 during 2015-16,  which shows an increase of 41 percent in five years.

5. CAG has said that the state was required to repay all its debt in a period of 7 years which was not a comfortable position for the state. The share of closing balance of market loans in the total public debt increased by 1 percent as it was 59 percent in 2014-15 to 60 percent in 2015-16.

6. The report stated that 32 percent of the borrowings of the state in 2015-16 had gone in repaying the debts, and such a proposition defeats the purpose of taking loans.

7. The state’s GSDP in 2015-16 at current prices was Rs 110,511 crore. Its literacy rate increased from 76.50 percent (2001 census) to 82.80 percent (2011 census). The per capita income of the state stands at Rs 130,067 in 2015-16.

8. The CAG has also made comments on state’s inability to file utilisation certificates of funds in time and said that the state could not file 2944 utilization certificates in respect of loans and grants amounting to Rs 2,225.40 crore till March 31, 2016.

9. The figures presented in the report say that the percentage ratio of capital expenditure to aggregate expenditure is 10.88 in 2014-15 and 11.17 in 2015-16, which is lower than the average ratio of special category states, 15.27 in 2014-15 and 13.95 in 2015-16.

10. Pointing out flaws in the debt policy of the state, CAG has said that the state agencies had been borrowing at the interest rate of 7.89 per cent during 2011-16, while it was getting returns at the rate of 4.10 percent from Statutory Corporations, Rural Banks etc. 

Way Forward :

So there is a need to formulate a mechanism and funding pattern for providing special financial assistance  to Himalyan state like Himachal. An intensive study is required for that and  agencies like Finance commission and CAG would send some concerned experts to states before finalizing response mechanism and funding pattern.

However Himachal Pradesh has made credible progress in adhering to macro economic parameters.

Hydro electric is a major source of revenue for the state but its full potential could not be realized due to the fact that the centre does not recognise hydel projects beyond a certain threshold as renewable energy projects. Also huge progress has been made in the last ten years  to bring down the  GSDP ratio to  38 % but this this ratio is unsustainable.

A lot  more is required  to be done to further bring down the ratio to atleast  further 8 – 10 % by making debt reduction plan to reduce the debt atleast 1,200 crore or more. It cannot be done overnight  but medium term plan should be made to achieve fiscal deficit target.