State Finances of Special Category States: A Comparative Study of Himachal Pradesh and Jammu & Kashmir

The states facing distinct problems of hilly terrain and turbulent international borders were considered as the main beneficiaries of the special category status (SCS). In these special category states, hilly terrain has been considered as the major challenge for the pace of infrastructural development. It was realised that fiscal restructuring/reforms are imperative for increasing efficiency of resource mobilisation and allocation in the economy and for the overall macroeconomic stability. Fiscal restructuring has been initiated in both Himachal Pradesh and Jammu & Kashmir on the recommendations of the Eleventh, Twelfth, and Thirteenth Finance Commissions but expected results are still awaited. The appropriate expenditure policy is missing in both the states. Consequently, the resources available with the states are insufficient to meet their respective socio-economic obligations. It has been observed based on certain fiscal indicators that both the states are under debt stress.