Challenges before the new govt in Himachal Pradesh
Himachal Pradesh has repeated its history of handing over the reins to power to the two main political outfits, one after the other. The BJP has won, but faces a war on the developmental front. The fight it faces on the fronts of a crumbling fiscal structure, slow down of development, shrinking employment market and burgeoning revenue expenditure is certainly far more formidable than winning the electoral battle.
The outgoing government followed the ‘Scorched Earth Policy’ in terms of creating huge revenue expenditure commitment by opening new institutions of all sorts — whether justified or not. In a state where its own tax and non-tax revenues have historically been grossly inadequate to meet salary, pension and interest payment commitment, this was adding fuel to the fire.
THE REALITY
A sizeable portion of the capital receipts is, thus, likely to be devoted to meeting the revenue expenditure commitment. This leads to worsening of the emerging debt trap. On the possibility of raising of resources — traditional avenues like hydro-electricity, forests, minerals and tourism — have shown deceleration.
Hydro-electric generation is on the brink of losing out to solar energy. Forestry revenues shall not increase due to environmental reasons. Industrial lobby groups obstruct revision in the rates of royalty on limestone — the principal mineral resource; and the tourism sector does not contribute much to revenue of the state. This means, curtains down on new/additional resource raising for the future.
Given this, the new government will face severe crunch of financial resources in the first two years of its term. In its later three years, it seems unlikely that the 15th Finance Commission will afford as liberal a deal as the 14th Finance Commission did.
The terms of reference of the 15th Finance Commission indicate that there will a greater demand of financial discipline from states in general, and from revenue-deficit states like Himachal, in particular.
Luckily, the outgo on subsides is only about 3% of the budget size. The two major subsidies are on domestic electricity consumption and essential commodities like pulses and cooking oil etc. Even these could become more targeted by a little tweaking, as those who can pay are dropped from the eligible list.
The public sector undertakings — without a loss of generality — are a burden on the exchequer. The state must disinvest or wind-up all lossmaking entities.
Rising unemployment among youth can lead to some form of social discontent.
WORK ON EASE OF DOING BUSINESS
The only way is to create an environment and conditions that are conducive to attracting big-ticket private sector investments. This, however, is not easy to do due to inherent disabilities — remote location, poor connectivity, non-availability of trained manpower — the state suffers from.
The hydro-electricity sector offers a remote chance, only if the potential allotted to developers is actualised expeditiously. That is a herculean task given the constraints, the obstructions, the extortion and the inordinately long process for getting a whole host of approvals. The new government has its task cut out in terms of freeing private investment from the current obstructive scenario.
The proverbial “Ease of Doing Business” process has to rise to the highest level of efficiency to enable a private sector investor get the confidence to put his money in the state.
Last but not the least, the law and order situation has taken a beating in the last couple of years. The confidence of the public at large, and that of investors appears to have been shaken. Addressing this deficit needs to be a priority.
The new government must embark upon a consolidation phase towards improving the delivery as also the quality of services. This is less expensive and has large positive spin-offs.
THE NEW GOVERNMENT MUST EMBARK UPON A VERY STRONG CONSOLIDATION PHASE TOWARDS IMPROVING THE DELIVERY AS ALSO THE QUALITY OF SERVICES IT IS OBLIGATED TO PROVIDE