Chandigarh’s Fiscal Paradox: Where Spending is Rewarded, Earning is Not....by KBS Sidhu

How Chandigarh’s Budgetary Framework Breaks the Link Between Revenue Mobilisation and Public Spending

The Union Budget 2026–27 has quietly done something unprecedented to Chandigarh. The Union Territory’s allocation has been reduced to ₹5,720.17 crore, down from ₹6,983.18 crore in 2025–26—the lowest level in three years.

The predictable local response has been to protest the cut and demand more funds, citing rising infrastructure needs. Yet behind this annual ritual of grievance lies a deeper, more troubling problem: Chandigarh is caught in a fiscal architecture that rewards it for spending more while offering virtually no incentive to earn more.

When Chandigarh Was a Net Contributor

One historical data point starkly exposes the absurdity of this arrangement. In 2018–19, Chandigarh received ₹4,536 crore from the Union Government but contributed ₹4,589 crore to the Consolidated Fund of India—₹52 crore more than it received.

In effect, the Union Territory was not a fiscal burden but a net contributor. Yet this surplus translated into no additional autonomy, flexibility, or incentive-based fiscal framework. Chandigarh continues to function within a system that severs any meaningful link between its revenue performance and its spending power.

The Structural Flaw: No Consolidated Fund, No Incentives

The root of the problem lies in Chandigarh’s constitutional position within India’s federal structure. As a Union Territory without a legislature, Chandigarh does not have a Consolidated Fund of its own in the constitutional sense.

Under Article 266 of the Constitution, all taxes and non-tax revenues collected within the territory—whether GST, excise on liquor, stamp duty, motor vehicle tax, or various fees and user charges—are credited directly to the Consolidated Fund of India.

Correspondingly, all public expenditure in Chandigarh is authorised not through a locally accountable budgetary process but through annual appropriations made by Parliament, under a specific demand for grants in the Union Budget.

The Chandigarh Administration has no constitutional authority to retain or appropriate the revenues it generates. The limited exception is the Municipal Corporation and the Chandigarh Housing Board, which may retain their internal receipts but are required to meet their own statutory expenditures from those resources and continue to depend on grants-in-aid from the Union Territory Administration.

In effect, Chandigarh functions as an administrative arm of the Union rather than a fiscally autonomous unit. Its revenue performance has no constitutional or statutory linkage to its spending power, a design choice that lies at the heart of the distorted incentives governing its public finances.

A System That Encourages Spending, Not Earning

This arrangement creates a perverse, inverse incentive structure. The Administration has every reason to push up expenditure, because higher spending in one year becomes the benchmark for arguing a higher allocation in the next.

At the same time, it has little direct fiscal reward for improving revenue collection, expanding the tax base, or tightening enforcement. Higher GST or excise collections do not enhance Chandigarh’s own spending capacity; they merely augment the Union’s Consolidated Fund. The rational bureaucratic response, therefore, is not to maximise receipts but to ensure that budgeted expenditure is fully “absorbed”.

Revenue Targets Missed Without Consequence

Recent fiscal data illustrates how this dynamic plays out in practice. In 2023–24, Chandigarh’s aggregate receipts were almost exactly on target, with collections of ₹5,906 crore against a Budget Estimate of ₹5,918 crore.

This headline figure concealed serious underperformance in key tax heads. Total tax revenue fell short by about ₹200 crore. GST collections were significantly below target, while the shortfall in state excise—primarily liquor revenue—was even more striking.

Against a target of ₹1,000 crore, actual excise collections amounted to only ₹739 crore. This was not a marginal deviation but a structural failure in one of Chandigarh’s most buoyant revenue streams. Yet it triggered no serious rethink of policy or enforcement, only renewed appeals for greater central support.

Revenue Expenditure Overshoots, Capital Spending Shrinks

On the expenditure side, the incentives operate in reverse. Revenue expenditure in 2023–24 exceeded the Budget Estimate by nearly ₹740 crore, driven largely by salaries, wages, and pensions. Spending on maintaining the administrative establishment far outpaced what had been planned.

Capital expenditure told the opposite story. Against a provision of ₹722 crore, actual spending was only about ₹443 crore, leaving a large portion unutilised.

The result is a familiar pattern: chronic overspending on committed expenditure and persistent underinvestment in infrastructure and asset creation. Yet budget discussions continue to focus on the overall allocation rather than the distortion within it.

The Pattern Repeats in 2024–25 and 2025–26

Provisional figures for 2024–25 indicate little course correction. Revenue expenditure breached its budgeted level before the year ended, while capital spending again lagged well behind its provision. The following year showed similar trends mid-way through the financial cycle: revenue receipts lagged expectations, but revenue expenditure advanced steadily.

These numbers are not alarming in isolation, but taken together they reinforce a central truth—Chandigarh’s fiscal space is largely insulated from its own revenue performance.

The 2026–27 Cut: Signal Without Structural Reform

The reduction in Chandigarh’s allocation in the 2026–27 Budget appears to signal the Centre’s dissatisfaction with persistent revenue-side overshoots and underutilisation of capital funds. Yet without reforming the underlying incentive structure, a blunt cut risks worsening outcomes: tighter capital spending, greater pressure on salaries and pensions, and continued indifference to revenue mobilisation.

Rethinking the Fiscal Compact

If Chandigarh is to escape this trap, three reforms merit serious consideration.

First, the Union Territory should be allowed to retain a defined share—say 20 to 25 per cent—of the revenues it generates in a dedicated Development Fund. Even limited retention would directly link improved revenue collection with enhanced investment capacity.

Second, a portion of Chandigarh’s annual allocation should be explicitly performance-linked, tied to measurable indicators such as growth in own-tax revenue, efficiency of collection, reduction of arrears, and full utilisation of capital funds.

Third, fiscal transparency must move to the centre of public debate. With no elected legislature, the city’s Member of Parliament is the only institutional actor positioned to press these issues with the Union Government. The conversation on allocations must move beyond claims of neglect to evidence-based scrutiny of how the current system rewards spending while ignoring earning.

A Paradox That Can No Longer Be Ignored

The paradox is unmistakable. A Union Territory that once contributed more to the national exchequer than it received now faces budget cuts while remaining trapped in a framework that discourages revenue effort.

Chandigarh deserves a fiscal system that rewards discipline and performance on both sides of the ledger—not one where the rational response is to spend more, collect less, and then plead hardship.

February 2, 2026