A Mountain of Debt: Himachal’s Borrowing Spree Under SukhU
ISAY EXCLUSIVE.
Since assuming office in December 2022, Chief Minister Sukhvinder Singh Sukhu has overseen a dramatic escalation in Himachal Pradesh’s debt burden, which crossed ₹1.04 lakh crore by early 2025. With revenue streams drying up and central aid shrinking, the state has turned increasingly to both domestic and international lenders to keep its development agenda afloat and meet pressing fiscal obligations.
Domestic Borrowings: Filling the Fiscal Hole
Between December 2022 and July 2024, the Himachal government borrowed a staggering ₹21,366 crore through the Reserve Bank of India, mainly via sale of government securities. After repaying ₹5,856 crore during this period, the net addition to the state’s debt stood at ₹15,502 crore.
The pace hasn’t slowed in FY2025-26. In April 2025, the government secured approval for a ₹900 crore loan, repayable by 2035. A second loan worth ₹800 crore was floated in June 2025 with a 20-year tenure, maturing in 2045. Both borrowings required mandatory approval from the Centre under Article 293(3) of the Constitution and were routed through RBI auctions.
While officially earmarked for “developmental works,” sources in the Finance Department confirm that a significant portion is being used to bridge routine revenue gaps, including the payment of salaries and pensions.
Multilateral Aid: Development Tied to Concessional Credit
In parallel, the Sukhu government has leaned heavily on international financial institutions to fund long-term projects. In June 2023, the World Bank extended a $200 million (approx. ₹1,650 crore) loan for renewable energy reforms in Himachal’s power sector. This IBRD loan carries a 14.5-year repayment timeline, including a 4.5-year grace period.
The Asian Development Bank (ADB) followed suit, approving a $130 million (₹1,072 crore) loan in February 2023 for horticulture and irrigation projects. Another ADB-backed loan of $162 million (₹1,311 crore) was greenlit in October 2024 to revamp the state’s tourism infrastructure—targeting heritage sites, rural connectivity, and public amenities. All multilateral loans are long-tenure and project-specific, ensuring sustainable development but increasing future liabilities.
Why Borrow? Juggling Development and Debt Servicing
The government claims that its borrowing strategy is a calibrated effort to sustain growth while navigating an acute resource crunch. Loan proceeds are being channelled into infrastructure, public welfare, and disaster recovery efforts—yet a deeper look reveals that a lion’s share is going into plugging non-developmental holes.
As per CM Sukhu’s own admission in the Assembly, of the ₹29,000 crore borrowed during his tenure, nearly 70%—around ₹20,353 crore—was used merely to service existing loans and interest. Only ₹8,693 crore has been funnelled into new developmental initiatives.
The state’s fiscal strain has been compounded by policy decisions such as the restoration of the Old Pension Scheme, and the aftermath of the 2023 monsoon devastation for which the Centre is yet to release over ₹9,000 crore in relief. With ₹30,000 crore annually required just to pay salaries and pensions, the state finds itself relying on fresh loans just to keep the machinery running.
Borrowing Terms: Long Roads Ahead
The newly raised loans come with long-drawn repayment cycles. The ₹900 crore loan raised in April 2025 has a 10-year term, while the ₹800 crore raised in June 2025 is structured for repayment over two decades. Similarly, the World Bank and ADB loans range between 14.5 and 30 years in tenure. These borrowings are kept within Fiscal Responsibility and Budget Management (FRBM) limits, but that limit itself is being challenged—Sukhu has formally requested the Centre to raise Himachal’s borrowing cap by an additional 2% of the Gross State Domestic Product (GSDP).
Debt Dynamics: Development Shrinks as Repayments Rise
By the government’s own figures, Himachal’s debt jumped from ₹76,185 crore in March 2023 to a worrying ₹1,04,729 crore by March 2025. As liabilities grow, development spending is taking a back seat.
In the 2025-26 budget, only 24% of every rupee is earmarked for development, while a combined 67% is consumed by salaries, pensions, interest, and principal repayments. The end of GST compensation in 2022 and the drastic reduction in central revenue-deficit grants have added to the squeeze.
The fiscal picture is grim, and while the Chief Minister maintains that borrowing is being done “responsibly” and within legal limits, financial analysts warn of a creeping debt trap—one that could bind the state’s hands for decades.
Government’s Stand: Borrow to Build
Despite mounting criticism, the Sukhu administration continues to defend its borrowing strategy. In multiple public statements and budget disclosures, the Chief Minister has emphasized that every rupee borrowed has been declared transparently and accounted for.
He has repeatedly pointed out the shrinking central support under the current regime and argued that in such conditions, loans are the only viable instrument to keep state-run schemes and welfare programs alive.
To ease future pressure, the state secured ₹3,329 crore as Special Central Assistance (SCA) from the Centre in FY2023-25. However, the scale of debt and the commitment to long-term interest payments mean Himachal may have little fiscal elbow room left for unforeseen shocks or ambitious new ventures.
