Himachal Pradesh goes to polls: When a state's purse is too light

Himachal Pradesh goes to the polls on Thursday. No matter which party comes to power, the challenge of running this progressive but fiscally strained state stares the new govt in the face. Sahil Makkar & Aditi Phadnis take a look at the promises made and if these can be achieved

On the last day of the monsoon session last year (2016), a massive row rocked the Himachal Pradesh legislative Assembly. How much should farmers be compensated if their land was acquired for national highways? The work in question was four-laning of the Kiratpur-Manali and Parwanoo-Shimla national highways.

The ruling Congress government of Virbhadra Singh was clear. “Our pocket does not allow us to pay compensation more than Factor 1,” the chief minister said. In this formula, two times the land value is paid as compensation. Under the Land Acquisition, Resettlement and Rehabilitation Act, 2013, anything between two and four times the value of the land acquired can be so paid — a decision is left to the state government. In Himachal, farmers came out on the roads and some petitioned the high court, as the government was only paying double and not four times the land value. 

The CM clarified: “If the Government of India want to give Factor Two (four times compensation), let them say so. We will change the system and give (this) compensation. So far as the state government is concerned, for its own works, we are not going beyond Factor One.” Finally, the Centre has taken over the widening of the roads and will pay for part of the compensation. But, what about the future?

The increase in the length of roads tells its own story. After the initial spurt in 2007-08 and 2009-10, the speed of growth in road-building has been glacial. P K Dhumal (Of the Bharatiya Janata Party) helmed the state in this period. On the other hand, the new compensation rules came in force only in 2013 (table on road growth in the state).

Going forward, land acquisition in Himachal is likely to be the new government’s big headache. In the run-up to the Assembly elections, both Congress and BJP have promised to pay four-time compensation for acquired land. Given the state’s finances and its inability to raise revenue, the new government is looking at a fiscal crisis (table on HP finances from the budget). 

“The overall fiscal liabilities of the state increased 46 per cent to Rs 41,197 crore in 2015-16, from Rs 28,228 crore in 2011-12 ,” according to an audit report from the Comptroller and Auditor General (CAG).


The biggest drain on HP’s finances are salaries and pensions (see chart). While government employment is going down, the Congress has promised that it will create 150,000 jobs in the government sector if it comes to power, and regularise contract employees if in service for two years or more.

In a recent interview, Dhumal conceded the government could not continue to be the prime job-giver. He emphasised the need to grow tourism and said if the BJP came to power, that sector would be expanded. 

Apples & oranges

The apple – the fruit, its marketing and sale – is the mainstay of the state’s economy. Apple takes  49 per cent of the area under fruit cultivation; from 3,025 hectares in 1960-61, this had gone up to 110,679 ha in 2015-16. However, production is erratic — not only due to the weather but market vagaries. The Congress has been asking the central government to raise import duties on apple, so that the state’s produce can compete with imported foreign fruit. The Economic Survey notes global trade treaties have had a negative effect on fruit production and marketing. The BJP has been circumspect, not wanting to embarrass the Centre on the eve of the election. “Himachal is very close to Modiji’s heart. When he was in-charge of state affairs for the BJP, he visited every nook and corner. I don’t think one has to demand anything or tell him anything about Himachal Pradesh,” state BJP chief Satpal Singh Satti told reporters.

There is much that Himachal can be proud of. For instance, quality and breadth of education, especially when compared to neighbouring Uttarakhand. But, balancing its books while ensuring growth and creating conditions for jobs is going to be a big challenge.