Ecostani | Not enough in budget, Himalayan regions wait for funds from Finance Commission
Strategically located Himalayan states cannot continue to suffer the lack of political power at the Centre even though it provides immense ecological services
The natural lifeline for the plains of northern and central India, the Himalayan states have not received anything substantial in the budget. This, despite a Reserve Bank of India (RBI) paper on the economic status of the region, published in June, which pointed towards its deteriorating fiscal position and increasing debt.
A primary reason for the deteriorating fiscal health of the Himalayan states is the removal of their Special Category Status (SCS) in 2015. The status was withdrawn after the 14th Finance Commission said SCS had no Constitutional status.
The finance commission said the loss would be bridged through higher devolution of funds — from 32% of total revenue collected by the Centre to 42%. It also added that a revenue deficit grant would be provided to certain states for which devolution would be insufficient. The latter proposal is yet to be implemented.
The special category for states was introduced in 1969 by the Fifth Finance Commission for states facing problems in generating revenue through industrialisation because of geological and inherent difficulties. All the Himalayan states fell in the special category because of low revenue generation (less than 5% of the state GDP) and the inherently tough life in mountainous regions. The status was also aimed at protecting the Himalayan ecology through central aid.
The RBI paper, co-authored by P S Rawat, Ettem Abhignu Yadav and Arti Mukherjee, pointed out that since 2015 the fiscal health of the Himalayan region has suffered over the years.
Before the status was taken away, the fiscal deficit of the states was within the FRBM or Fiscal Responsibility and Budget Management Act threshold of 3% and by 2018-19, it crossed 4% though it moderated a bit in 2023-24, the paper said.
“The gap between the fiscal deficit of the Himalayan states/UTs and other states has widened during this period. The capacity of the Himalayan states/UTs to mobilise their own tax revenues remains constrained due to the challenges emanating from their economic and geographical structure,” the paper concluded.
The paper also said that the debt of the Himalayan states was rising rapidly due to low revenue. Before the status was withdrawn, the debt to SGDP (State Gross Domestic Product) ratio was 29%, which crossed over 30% by 2019-20. “None of the Himalayan states except Assam has a healthy debt to SGD ratio,” the paper said.
The report highlighted that the north-eastern states of Assam, Tripura, Meghalaya, Mizoram and Arunachal Pradesh emerged as the top best performing of the 11 Himalayan states and UTs on Fiscal Health Index (FHI) for periods between 2010-11 to 2014-15 and 2015-16 to 2023-24.
The north-western Himalayan states of Himachal, Uttarakhand, Jammu and Kashmir remained lower ranked with a decline in performance in the second period, as per the Fiscal Health Index (FHI). Uttarakhand witnessed the maximum decline between the two periods, as per the FHI used to compare the financial health of states, regions or nations.
The study clearly showed that removing the special category status has not helped Himachal Pradesh, Uttarakhand, Jammu and Kashmir. The reason is that the north-western Himalayan region has no special funding from the Union government similar to the one for the north-eastern region.
In view of this data, one would have expected some fiscal relief to the Himalayan states, which on most indices are worse than Andhra Pradesh and in some than Bihar. However, finance minister Nirmala Sitharaman chose to lavish funds on Andhra and Bihar, whose ruling parties are crucial for Narendra Modi-led National Democratic Alliance to continue at the Centre.
Sitharaman’s budget speech shows that funds close to one lakh crore were given to Andhra and Bihar and the ecologically and strategically important Himalayan region received nothing.
The only reference to the Himalayan states was in the context of Bihar.
In the section regarding floods, Sitharaman gave ₹11,500 crore for the Kosi flood management plan and in that she announced “assistance” to tackle the impact of rains in Himachal, Uttarakhand and Sikkim in 2023.
Himachal had experienced the worst extreme rain impact in over 100 years in which over 500 people died in 2023. In comparison, the intensity and ferocity of rains in Sikkim and Uttarakhand were not as intense.
Himachal chief minister, Sukhwinder Singh Sukhu, has alleged discrimination saying while Sikkim and Uttarakhand will receive special assistance, Himachal will get multi-lateral special assistance.
Financial experts said that while BJP-ruled Uttarakhand and its ally partner-ruled Sikkim will get funds from the Centre, the opposition Congress-ruled Himachal may get money from r multi-lateral agency, meaning it would be a loan, not a grant.
At the National Institution for Transforming India (NITI) Aayog meeting on Saturday, Uttarakhand chief minister Pushkar Singh Dhami sought a separate policy framework and funding mechanism for the Himalayan region. Himachal and other Congress-ruled states boycotted the meeting, alleging discrimination in funding to states other than Bihar and Andhra Pradesh.
The NITI Aayog, which provides information-based services to the finance commission, needs to push for a special financial package for Himalayan states, especially in the northeastern ones, which are in serious ecological danger due to the rapid pace of development.
The finance commission, which is considering a change in the devolution of funds from the Centre to the states, needs to provide funds for sustaining ecology and for debt-serving to the Himalayan states. The commission needs to increase the share of the Centra funds to 90% to 100% for the central sector and centrally sponsored schemes of the Central government for the region to improve its human capital.
The strategically located Himalayan states cannot continue to suffer from the lack of political power and heft at the Centre even though it provides immense ecological services to more than half of the country.
Chetan Chauhan, national affairs editor, analyses the most important environment and political story in the country this week
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