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The cornerstone of the development strategy
pursued so far has been a super-active government in all spheres of economic
activity. Direct government employment has increased to about 25,000 in 1999,
implying a quarter of the population (assuming 4 dependants per government
employee) depending directly on the government for their livelihood. Expenditure
on wages, salaries and pension, and on interest payments, constitute 35.4 per
cent and 8.9 per cent, respectively, of total government expenditure. For
example, in 1998-99 the share of these two items in total government expenditure
was pre-empting almost half of total government expenditure. The impact of
public spending on the state’s economy has been somewhat limited. With the Gross
State Domestic Product (GSDP) at only 1.2 times government expenditure, there is
a problem of the “missing multiplier”. A rupee of government expenditure appears
to be generating little extra income beyond the rupee of income that it directly
generates in the first round. While the implementation of several plan schemes
has contributed to the establishment of relatively modern infrastructure in
education and primary health, available evidence suggests that some of these
assets are in a state of bad repair and utilization, and some services have
already been adversely affected.
Revenues of the
government – including devolved funds from the centre, plan assistance, and own
revenues – have not kept pace with galloping expenditure resulting in double
digit fiscal deficits in seven out of the past ten years. Fuelled partly by the
implementation of the Pay Commission’s recommendations, the deficit reached a
staggeringly high figure of 20.91 per cent of GSDP in 1998-99; the revised
figure for 1999-2000 is 18.5 per cent of GSDP. High deficits have resulted in
mounting debts. The debt-to-GSDP ratio has rapidly increased from 55.3 per cent
in 1989-90 to over 80 per cent in 1999-2000. In 1995-96, in terms of the
debt-to-GSDP ratio, Sikkim was the third highest in India after Jammu and
Kashmir, and Nagaland. The debt-dynamics, by contributing to the burgeoning
interest burden, has squeezed the share of capital expenditure in total
government expenditure in Sikkim. The relevant share has fallen from 28.8 per
cent to 21.4 per cent between 1989-90 and 1999-2000. The strategy of generating
further direct employment in the government and stepping up government
expenditure in other areas without improving the effectiveness of government
expenditure is unsustainable.
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