Himachal weighs special Assembly session as loss of Revenue Deficit Grant threatens budget, plan outlay and development spending
Himachal Pradesh is staring at one of its most serious fiscal challenges in recent years following the Centre’s decision to discontinue the Revenue Deficit Grant (RDG), a move that threatens to widen the state’s already fragile finances and could significantly impact development spending in the coming years.
The state government has begun preparations to convene a special session of the Himachal Pradesh Legislative Assembly to deliberate on the implications of the decision and chart a collective political and financial response. The proposal is expected to be taken up at a cabinet meeting scheduled for February 8, with the special session likely to be held anytime after February 15. The regular budget session of the Assembly will now be convened only after this special sitting.
The concern stems from provisions in the Union Budget presented after the recommendations of the Sixteenth Finance Commission, which propose to completely discontinue the Revenue Deficit Grant after March 31, 2026. For Himachal Pradesh, the RDG has been a crucial financial lifeline, helping bridge the gap between revenue receipts and committed expenditure, a deficit that has grown steadily over the years.
Under the Fifteenth Finance Commission, Himachal Pradesh was sanctioned a total Revenue Deficit Grant of around ₹37,199 crore for the period from 2021-22 to 2025-26. Of this, ₹10,249 crore was released in 2021-22, ₹9,377 crore in 2022-23, ₹8,058 crore in 2023-24, and ₹6,258 crore in 2024-25. Only ₹3,257 crore remains to be released up to March 31, 2026, after which the grant will cease entirely.
Senior ministers said the cabinet would also examine why the Sixteenth Finance Commission framework failed to adequately account for the structural disadvantages faced by hill states, including high service delivery costs and limited revenue-generation capacity. Long-pending disputes involving Punjab, Haryana, and the Bhakra-Beas Management Board are also expected to be raised during the proposed Assembly discussion.
Adding to the pressure is the decline in Himachal Pradesh’s share in the national divisible pool, which has now fallen below one percent, lower than that of several other states including Haryana, Uttarakhand, and Goa. Officials say this has further constrained the state’s fiscal flexibility.
Chief Minister’s Principal Media Advisor Naresh Chauhan said the Centre’s decision to withdraw the Revenue Deficit Grant has ignored the financial interests of Himachal Pradesh. He said the Chief Minister has sought a serious discussion in the Assembly involving both ruling and opposition parties to evolve a common strategy to deal with the looming fiscal challenge.
The impact of the Revenue Deficit Grant withdrawal is expected to be reflected in the state’s annual plan outlay for the next financial year, which government sources indicated could be lower than the current year. The issue is slated to be discussed during MLAs’ priority meetings on February 6 and 7. A reduced plan outlay could also affect the size of the state budget for 2026-27, which comes into effect from April 1.
At present, nearly 60 percent of Himachal Pradesh’s budget is spent on committed liabilities such as salaries, pensions, loan repayments, and interest payments, leaving limited fiscal space for capital expenditure and development schemes.
Meanwhile, in an effort to augment resources, the Finance Department has directed banks to transfer dormant accounts and unutilised government funds lying in the Reserve Bank of India’s Depositor Education and Awareness Fund to the state treasury. Finance Secretary Abhishek Jain has instructed banks to ensure prompt compliance, while clarifying that any amount transferred in error would be returned.
