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It is imperative that the state redefines
its expenditure priorities to promote sustainable income- and
employment-generating activities in identified sectors. As long as there are
people below the poverty line, subsidies for primary education and primary
health should continue. At the same time subsidies have to be well-directed and
accrue only to the truly needy. The basic objective of the subsidy policy should
be to encourage the formation of human capital, foster the setting up of
industries and provide infrastructure.
The annual cost
of subsidies in Sikkim has increased significantly in recent years. While
subsidies for industries, co-operatives and agriculture are on the decline, they
have been increasing rapidly in areas such as food and civil supplies. Subsidies
are both explicit and implicit; the estimates of "subsidies" in the Budget refer
only to explicit subsidies, but there are many subsidies that arise outside the
Budget and remain unnoticed, such as government investment in public enterprises
in the form of equity and loans. An assessment of the full impact of subsidies
on state finances would require a quantification of implicit subisidies as well.
Implicit subsidies are estimated as the unrecovered cost in the provision of
public goods and services (apart from pure public goods such as defence and
public administration). In theory it is possible to recover the cost of
providing the services in proportion to the extent of their consumption (see box
3.1 for the estimation method). Recovery rates have been calculated for Sikkim
and are listed in table 3.3.
Table 3. 3: Explicit and Implicit Subsidies: Recovery
Rates
(per cent)
|
Sectors |
1991-92 |
1997-98 |
|
Education: Primary |
0.35 |
0.12 |
|
Education: Secondary |
0.30 |
0.20 |
|
Medical and Public Health |
0.58 |
0.32 |
|
Road Transport |
68.00 |
28.37 |
|
Power |
10.63 |
7.46 |
|
Tourism |
22.00 |
5.96 |
Sources: NIPFP Working Estimates; Finance
Accounts, 1991-92
and
1997-98, Government of Sikkim.
The
deterioration of recovery rates shown in table 3.3 is an indication of the
alarming growth in subsidies, which is a cause for concern. The government
should review the profile of beneficiaries and redirect subsidies to only those
below an appropriately defined income limit. A vision for the state cannot be
delineated with the continued provision of subsidies to the entire population.
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