Sikkim: The People's Vision

The Scenarios

In the first scenario, the entire burden of adjustment is borne by a compression of capital outlay, which is completely squeezed (and turns out to be a negative per cent of GSDP by 2004-05). This illustrates how precarious and unsustainable the scenario is as capital outlay, which is linked to Plan grants, cannot decline to such a level.

Table 2. 8: Base Scenario : Summary of Results

(per cent of GSDP)

		1999-2000¹	2000-01	2001-02	2002-03	2003-04	2004-05
A. Revenue Receipts (net of lotteries)		66.88	72.08	68.06	65.60	63.31	60.54
Own Tax Revenue		6.40	6.13	5.88	5.65	5.44	5.25
Non-Tax Revenue (net of lotteries)		3.69	3.42	3.18	2.95	2.74	2.55
Share in Central Taxes		12.98	10.75	11.05	11.28	11.58	11.83
Grants		42.80	51.78	47.96	45.71	43.54	40.91
B. Capital Receipts (net)		14.10	9.81	11.84	11.16	10.06	9.18
Total Receipts (net of lotteries) (A+B)		84.37	81.89	79.91	76.75	73.37	69.72
I. Revenue Exp. (net of lotteries)		68.04	69.93	71.18	71.74	72.81	74.30
Social Services		25.24	26.13	27.04	27.99	28.98	29.99
Economic Services		23.68	23.37	23.06	22.76	22.46	22.17
Gen. Service of which Interest Payment		8.76	9.91	10.41	10.20	10.49	11.18
II. Capital Outlay		18.33	18.00	17.67	17.35	17.04	16.73
Total Expenditure (net of lotteries) (I+II)		86.37	87.93	88.85	89.09	89.85	91.02
Revenue Deficit		-0.03	-4.18	1.22	4.39	7.88	12.25
Balance of Resources			-4.01	-7.05	-10.59	-14.86	-19.79
Fiscal Deficit		16.10	9.68	11.73	11.05	9.96	9.09
Primary Deficit		7.34	-0.23	1.32	0.85	-0.53	-2.08
Outstanding Debt		77.47	77.58	79.73	80.94	80.92	80.04
Scenario I	Residual: Capital Outlay		13.99	10.62	6.77	2.18	-3.07
Scenario II	Residual: Additional Central Grants		4.01	7.05	10.59	14.86	19.79
Scenario III (Res. Add. Borrowing)	Fiscal deficit		13.69	20.22	25.03	30.43	37.01
	Primary Deficit		3.78	8.37	11.44	14.32	17.71
	Outstanding Debt		81.65	91.84	105.59	123.05	144.95
Memorandum Items
Revenue Receipts²		191.44	188.50	176.01	165.68	156.11	146.58
Non Tax Revenue²		129.25	119.84	111.12	103.04	95.54	88.59
Net Borrowing³		14.91	9.63	11.68	11.00	9.92	9.06
Total Receipts²		205.53	198.31	187.86	176.84	166.17	155.77
Total Revenue expenditure²		191.40	184.32	177.24	170.08	163.99	158.83
Total Expenditure²		209.74	202.32	194.91	187.43	181.03	175.56

Note: 1 revised estimate, 2 includes lotteries; 3 includes recovery of loans and net public account transactions other than small savings and provident fund.

Source: NIPFP, Working Estimates.

In the second scenario (chart 2.13), additional grants from the Centre (over the normal share that the state receives) are expected to finance expenditure. The requirement for additional grants steadily increases to 19.79 per cent of the projected GSDP by the end of the projection period. This again is clearly unrealistic, given the stress that Central government finances are already experiencing.

In the third scenario (chart 2.14), the state borrows from the market to meet the shortfall in resources. Once the state takes recourse to additional borrowing in the first year of projection, interest payments rise. These feed into the next year’s expenditure, which are then higher than what they would have been. The state falls into a vicious debt trap with the fiscal deficit reaching an unmanageably high level of nearly 37 per cent by the end of the projection year, and the debt-to-GSDP ratio skyrocketing to nearly 145 per cent.

The three scenarios clearly indicate a deep-rooted malaise in the current situation which needs to be addressed through vigorous reforms. Even if the second scenario is accepted as remotely plausible, the desirability of building Sikkim largely on the basis of Central grants needs to be examined: while this may be possible in the medium term, in the longer run such a dependency could be disastrous. The falling share of capital outlay in scenario 1 or burgeoning debt to GSDP ratio (scenario 3) is not the only manifestations of the crisis. Despite a continuous rise in Central grants, the result is a fall in capital outlay as a percentage of GSDP. The declining share of own revenue, and steadily increasing revenue expenditure as reflected in the revenue deficit are at the root of the crisis.