3 min readShimlaFeb 4, 2026 02:01 PM IST
First published on: Feb 4, 2026 at 01:58 PM IST
The 16th Finance Commission (FC-16) report has pointed to losses of Rs 605 crore incurred by State Public Sector Enterprises (SPSEs), particularly in the power sector, and a sharp deterioration in fiscal indicators.
The FC-16, which has been criticised for remaining silent on the Revenue Deficit Grant (RDG) for Himachal Pradesh and several other states, has raised serious concerns over the financial affairs of the hill state. “The state (Himachal Pradesh) has seen its fiscal deficit rise sharply over the last two years, reaching 6.4 per cent in 2022-23 and 5.3 per cent in 2023-24,” said the report tabled in the Lok Sabha by Union Finance Minister Nirmala Sitharaman while presenting the Union Budget for 2026-27 on Sunday.
The FC-16 noted that the state government allocates only a small portion of its budget towards capital expenditure, while prioritising salaries, pensions, subsidies and interest payments.
The report, signed by Dr Arvind Panagariya, Chairman of the 16th Finance Commission, categorised Himachal Pradesh among the states whose commitment to fiscal discipline was found to be less encouraging. It specifically referred to amendments made by the state government to its Fiscal Responsibility and Budget Management (FRBM) Act, 2003.
The report observed, “While most states have adhered to fiscal targets, the commitment of some states has been less encouraging. There have been repeated amendments to the FRBM Acts of certain states to alter fiscal targets, effectively shifting the goalposts, particularly with respect to deficit and debt thresholds. For example, Himachal Pradesh amended its FRBM Act in 2023 to revise the fiscal deficit target to 6.0 per cent for the year 2022-23.”
West Bengal was also listed in the same category.
The FC-16 further commented on the state’s electricity subsidies, placing Himachal Pradesh among states that provide subsidies to large groups of consumers rather than targeting vulnerable sections. The report noted that such broad-based subsidies tend to be regressive.
“It emerges that in states that provide subsidies to large groups of households, subsidies become less progressive. States like Himachal Pradesh, Tamil Nadu, Punjab, Karnataka and Rajasthan, which provide power subsidies to large groups, have somewhat more regressive benefits that flow disproportionately to higher consumption households,” the report stated.
In contrast, the Commission observed that states such as Kerala, Goa, Gujarat and Odisha follow a more targeted approach by restricting free power to specific groups, including SC/ST households or consumers with very low monthly consumption. According to the report, such designs help improve the quality of life of vulnerable populations while limiting fiscal impact.
The Commission also noted that Himachal Pradesh has suggested giving 2.5 per cent weight to dense forest cover, 5 per cent to initiatives taken for the Green Credit Programme, and another 5 per cent to forest cover as a proportion of the total geographical area under this criterion.
The state has also suggested using a composite indicator of socio-economic factors such as health, education, rural electrification, and self-employment, etc.
The 16th Finance Commission has made an allocation of Rs 2,384 crores under State Disaster Response Fund for 2026 to 2031:
The FC-16 further commented on the state's electricity subsidies, placing Himachal Pradesh among states that provide subsidies to large groups of consumers rather than targeting vulnerable sections. (File Photo) 
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