Himachal: a successful past an uncertain future – World Bank Report

The World Bank has cautioned the hill state of Himachal Pradesh to address its fiscal constraints on a priority basis, backed by governance measures, especially to curb the mounting salary bill.

In a poverty reduction and economic management report, a first for any hill state in India by the World Bank mentions that Himahcal may be reaching the limits of its traditional sources of growth and social development that is heavily dependent on public spending financed by borrowing and central assistance. “It is thus important for the state to look towards self sufficiency in meeting its challenges”, the report states.

Spelling out problems it says that ‘difficult choices in public policies will be needed that mark some break from past development strategies. The role of the state, in particular, must change increasingly from a direct provider of services and jobs to being an enabler of human and natural resource development potential.’

As remedial measures the reports suggests, it would be important for HP to take steps towards making the transition from a state-led to a private sector oriented economy. In order to address employment issues, the state should begin the process of assessing and projecting skills and education requirements.

The state should take measures to promote hydropower and tourism development sectors. Simultaneously, measures to conserve and protect the environmental heritage and develop an environment policy needed priority attention.

About expenditure compression the report mentions that efforts must be made to contain salaries and pensions in particular and gradually phase out non-merit subsidies. In addition, the state needs to better manage debt and contingent liabilities.

The report points out that Himachal is a debt-stressed state, with an unsustainably high debt stock amounting to about 74 percent of its Gross State Domestic Product (GSGP). Moving towards sustainability could help contain interest payments.

Fiscal risks from the operations of poorly performing state owned enterprises (PSEs) and boards needed to be minimized by implementing a reform strategy for these entities. Contingent liabilities in the form of outstanding guaranteed borrowings by the states 23 PSE’s was high, at about Rs 35.5 billion or about 14% of GSDP as on March 2006. Their accumulated loss was Rs 9 billion or 3.5 of GSDP. HPSEB and HRTC, the largest PSEs which have about 80% employees in PSEs were responsible for 70 percent of accumulated losses. The government carries a significant fiscal risk from the accumulated losses incurred by the PSEs, the report cautions.

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