Finance Commission fails to provide meaningful Revenue Deficit Grants (RDGs)
Expressing disappointment over the Union Budget 2026-27, Chief Minister Thakur Sukhvinder Singh Sukhu described it as an anti-poor and anti-farmer budget and stated that it ignores interests of key sections of the society. Describing it as inequitable, the Chief Minister stated that Finance Minister, Nirmala Sitharaman has completely overlooked the concerns and priorities of the Himachal Pradesh.
He raised serious concerns regarding the recently tabled 16th Finance Commission (FC-XVI) Report for the period 2026-31. The Chief Minister voiced strong disappointment over the Commission's failure to provide meaningful Revenue Deficit Grants (RDGs) for the state despite repeated representations, detailed memoranda and technical submissions. Besides, the Finance Commission has not recommended Revenue Deficit Grants (RDGs) for small states, including Himachal Pradesh, which he termed as deeply disappointing decision and termed it as injustice, hurting the sentiments of the people.
The Chief Minister said that Article 275(1) of the Constitution provides for state-specific grants from the Union Government, also known as Revenue Deficit Grants (RDG). From 1952 up to the Fifteenth Finance Commission, these grants were regularly provided by the Centre to the states. However, for the first time, the Sixteenth Finance Commission has discontinued this grant,
He said that under the Fifteenth Finance Commission, Revenue Deficit Grants amounting to approximately Rs. 37,000 crore were provided. He further noted that after the completion of the Fourteenth Finance Commission, when there was a delay in the submission of the Fifteenth Finance Commission’s report, assistance of Rs. 11,431 crore was still provided on the basis of an interim report during the tenure of the previous BJP government.
It is sad that this omission overlooks structural fiscal handicaps, including high forest and ecological cover of about 67 percent, higher per-capita cost of service delivery in mountainous terrain and repeated natural disasters causing losses exceeding Rs.15,000 crore in recent years, he remarked.
Himachal Pradesh had anticipated targeted support for hill-specific priorities such as hydropower development, eco-tourism, road and rail connectivity and compensation for revenue losses arising from GST implementation. He cautioned that the absence of adequate RDGs will constrain Himachal Pradesh's ability to deliver essential public services, maintain fiscal sustainability and invest in future growth, potentially forcing difficult choices between service delivery and increased indebtedness.
The Chief Minister stated that the budget has once again failed to respond to the critical issues confronting the nation, particularly unemployment, poverty and escalating prices. He said the apple growers of Himachal Pradesh, who make a vital contribution to State's economy of around Rs. 5000 crore and support thousands of families, have received no recognition in the Union Budget.
“It does not contain any substantial initiatives to tackle the persistent challenges in the agricultural sector, such as inadequate support prices and insufficient investment in advanced farming practices, infrastructure and modernization. Himachal Pradesh, like several other states, continues to face difficulties as the budget appears to favour wealthy over common Indian citizens,” he said.
Sh. Sukhu further said the budget has overlooked the long-pending issue of expanding the rail network in Himachal Pradesh, including no allocations have been made for railway expansion in the state, including key projects such as the Bhanupali-Bilaspur and Baddi-Chandigarh lines. He stressed upon to increase loan limit to 4 percent instead of the present 3 percent, but the demand has been overlooked, he remarked.
It is a sad affair that despite Himachal Pradesh being home to world-renowned tourist destinations the budget makes no specific provisions for tourism infrastructure development. While a Buddhist Circuit has been proposed for the northeastern states, it would have been appropriate to include the Buddhist Circuit of Himachal Pradesh as well. The budget does mention the development of mountain trails, but concrete benefits for the state will depend on the detailed guidelines yet to be issued.
He stated that while the Union Budget prioritizes capital investment, hill states require special provisions and higher central assistance for disaster-resilient infrastructure, road connectivity, tourism, hydropower development and climate adaptation. Enhanced flexibility in centrally sponsored schemes, greater weightage to ecological and forest indicators in fiscal devolution and the development of a separate Disaster Risk Index for Himalayan states would have strengthened cooperative federalism.
“The allocation for interest-free loans to states, fixed at Rs. 1.5 lakh crore has not been enhanced and the stringent conditions attached to it, do not support smaller states like Himachal Pradesh due to cost-related disadvantages. The discontinuation of GST compensation has resulted in an annual revenue loss for the state,” he said.
As a special category hill state, Himachal Pradesh faces unique challenges due to its difficult terrain, fragile ecology, frequent natural disasters and a limited own-revenue base. In this context, stronger fiscal support, particularly a clear framework for continued RDGs beyond the current Finance Commission period is critical for maintaining fiscal balance, delivering essential public services and sustaining social welfare commitments.
The Government of Himachal Pradesh remains committed to fiscal prudence, improved revenue mobilization and efficient public service delivery. He emphasized upon the Union Government to engage in continued and constructive dialogue with states, addressing these concerns in the spirit of inclusive, region-balanced and truly federal growth, ensuring that the aspirations and constraints of hill states are fully integrated into India's development journey.
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