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The total resources of
the government comprise revenue receipts and capital receipts (net). Revenue
receipts have been projected on the basis of historical trends. The different
components of own-tax revenue have been projected till 2004-05, based on their
respective buoyancies estimated for the period of 1989-90 to 1997-98 and an
assumed GSDP nominal growth rate of 14 per cent per annum.Given that the rate of
growth of nominal GSDP is higher than in the past and the lack of own-tax
buoyancy (apart from sales and motor vehicles taxes), the share of own-tax
revenues in GSDP declines further from 6.40 per cent in 1999-2000 to 5.25 per
cent by the year 2004-05. Non-tax revenues have also been projected at a
disaggregated level. The four components of non-tax revenues are revenues from (i)
interest receipts, dividends and profits, (ii) general services, (iii) social
services and (iv) economic services. For interest receipts, dividends and
profits, the historical negative annual growth rate of 4 per cent has been
extrapolated until 2004-05. Revenues from general services include (under the
miscellaneous head) receipts from lotteries, which tend to be very high,
although the associated expenditures for lotteries also tend to be considerable.
The average rate of growth of 6 per cent in the last two years has been applied
to revenues from general services to obtain the projections. Similarly, for
projecting the other two components - revenues from social and economic services
- the average growth rates of 14 per cent and 6 per cent, respectively, observed
during 1989-90 to 1999-2000, have been used. Because of the considerably slower
growth in the components of non-tax revenues relative to GSDP, non-tax revenues
decline from 3.69 per cent of GSDP in 1999-2000 to 2.55 per cent in 2004-05.
Sikkim's
share of Central tax revenues as estimated by the Eleventh Finance Commission
has been
incorporated for the period 2000-01 to 2004-05 (see the Report
of the Eleventh Finance Commission, June 2000, Annexure VI-8) for
the projection exercise. Sikkim’s share in Central taxes falls marginally over
the
period by 1.15 per cent under the baseline scenario.
The total plan grants of the state government have been
allowed to grow at a robust rate of 14 per cent, which is higher than the Plan
Authority estimates contained in the memorandum submitted to the Eleventh
Finance Commission. Non-plan grant estimates have been taken from the Eleventh
Finance Commission and comprise two parts: non-plan revenue grant and
upgradation and special purpose grants. The estimates of the Eleventh Finance
Commission have been used to project the future profile of non-plan grants. This
results in an increase in grants, including the share in taxes as a proportion
of GSDP, from 44 per cent in 1999-2000 to 49 per cent in 2004-05.
According
to the Eleventh Finance Commission, since a substantial amount of grants-in-aid
is
being given to SCSs to meet the demand on non-plan revenue account, the
diversion of plan expenditure to the non-plan category should be discontinued,
and Planning Commission funds should be used for plan expenditures and
to build
sound infrastructure for accelerated development. Total grants are expected to
experience a downfall from 42.80 to 40.91 during 1999-2000 to 2004-05.
Capital
receipts (net), comprising internal debt, loans and advances from the Centre,
savings and provident fund, recoveries and net withdrawal of funds from the
Public Account net of small saving and provident fund, have also been taken to
be the same as the estimates submitted to the Eleventh Finance Commission by the
state government. The drastic fall is expected because the state had an
abnormally high fiscal deficit for two consecutive years as a result of the
implementation of the State Pay Commission’s recommendations. Under the baseline
scenario, total receipts decline by nearly 15 percentage points from 84.4 per
cent in GSDP in 1999-2000 to 69.7 per cent in 2004-05 (net of lotteries).
Expenditures
have also been projected at a disaggregated level. The different components
of
revenue expenditure (except for interest payments which are state government’s
estimates) have been extrapolated; capital outlays are based on historical
growth rates. Past trends indicate a shift in the composition of revenue
expenditure from economic services to social services. For 1989-90 to 1997-98,
the growth rates for social and economic services have been estimated
to be 18
and 12.5 per cent per annum, respectively, in conformity with this compositional
change. For the components of general services, organs of state and pension
and
miscellaneous services, the historical growth rates for the period 1989-90 to
1997-98 of 14 and 5.7 per cent, respectively, have been applied. For the
period
1992-93 to 1997-98, for fiscal and administrative services, the growth rates
applied are 18.2 and 15 per cent, respectively.The surplus in the revenue account turns eventually to a deficit by the
year 2001-02 and rises further to 12 per cent of GSDP by 2004-05.
Capital
outlay has been projected to grow at nearly 12 per cent per annum, the
rate
estimated for the period 1989-90 to 1999-2000. The falling share of capital
outlay observed in the past not only continues but gets accentuated over the
projection years. By 2004-05, the share falls by 1.6 percentage points
to 16.7
per cent. The historically determined growth of expenditures is obtained by
aggregating revenue and capital expenditure.
Total
receipts from all sources, including borrowing, fall short of the resource
requirements for financing the projected expenditures, which consist of revenue
and capital outlays over the projection period.The balance of resources
is
defined as total receipts minus total expenditure and this is negative for all
years. This is clearly a precarious and unsustainable situation. Since
the state
cannot freely borrow more, the brunt of adjustment is likely to be borne by some
combination of expenditure compression, in particular capital outlay and
maintenance (the discretionary elements of expenditure) and additional resource
mobilisation, for example, from tax and non-tax sources. Three scenarios
have
been delineated to indicate what the state may have to do to deal with the
evolving fiscal stress (table 2.8).
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