Empty coffers and heavy loan liabilities await the new government in Himachal Pradesh, which faces elections on February 26. With the tiny State on the verge of a debt trap, reports say it is going to be difficult for any government to get the State’s economy back on the rails. Official sources in the State have said the State’s loan burden swelled to over Rs. 13,000 crore. Himachal is facing a deficit of Rs. 2,381 crore in its budget in the current financial year and the shortfall is being met with borrowings. Worse still, the State’s annual plan showed no increase from Rs. 1,700 crore for two consecutive years, with the Government failing to mobilise resources. Another headache is salaries, with the Government doling out nearly Rs. 1,600 crore to over three lakh employees.

In Maharashtra, the newly-appointed Chief Minister, Sushil Kumar Shinde, has inherited a huge State debt running into thousands of crores. This debt is likely to touch Rs. 81,000 crore at the end of the current financial year and in all probability will increase to Rs. 1,00,000 crore by mid-2004, according to a medium fiscal term responsibility estimate prepared by the Maharashtra Government. In addition, funds budgeted for welfare and development schemes were diverted to fund populist decisions based on political needs, it has been pointed out.

The next financial year will be the worst as the State Government will have to make the maximum repayment ever for all the loans it has taken over the years. The amount to be repaid has been estimated at Rs. 13,000 crore. Observers point out that the Vilasrao Deshmukh government has been a major victim of politically motivated populist decisions which have had a tremendous impact on the State exchequer. Political leaders in the State have pointed out that the Government’s debts went up to Rs. 81,000 crore due to a variety of reasons. Amongst them were political decisions that included bailing out the Maharashtra State Electricity Board at a cost of Rs. 7,000 crore and Rs. 4,500 crore for the cotton monopoly scheme. It is likely to require another Rs. 200 crore for the onion crisis.

The State Finance Minister said in 1995, when the Sharad Pawar-led Congress Government demitted office, that the State had a surplus of Rs. 250 crore. When the Shiv Sena-BJP Government lost power in 1999, they left behind a debt of Rs. 49,000 crore and several incomplete infrastructure and irrigation projects. In three years, the Deshmukh government had repaid Rs. 27,000 crore as interest and Rs. 5,300 crore as principal. Since the loans taken by the earlier alliance government were at a very high interest rate, without any call options and for a period of five to seven years, it has led to a debt cycle. Implementation of the Fifth Pay Commission report, too, had cost the Government Rs. 4,000 crore annually.

The Central Government is said to be Maharashtra’s biggest moneylender . But though the Reserve Bank of India has, over the past couple of years, reduced interest rates, it has refused to allow the benefit to Maharashtra. The State has been paying 11.5 per cent interest on its loans. This year, the State has budgeted Rs. 1,413 crore as principal amount and Rs. 7,000 crore as interest to be repaid to the Centre . Considering the State’s delicate financial condition, the State authorities opted for financial restructuring with World Bank help. But that clearance, too, has not come.

On its part, the Centre is unlikely to take a lenient or generous view of the States’ demand for funds. With a massive fiscal deficit on his doorstep, Finance Minister Jaswant Singh is likely to maintain a tight-fisted approach to most of the demands of Central Ministries and State Governments in his first budget to be presented this month.