In an effort to bring about fiscal consolidation and reforms, Fiscal Responsibility and Budget Management (FRBM) Act was implemented in the year 2010-11. This is in essence, a target based framework to ensure that Government finances are managed to achieve equitable, long term macroeconomic stability, consistent with attainment of the medium term growth. In recognition of fiscal efforts, the 13th Finance Commission has awarded Rs. 200.00 crore as incentive to the State. The Sikkim Fiscal Responsibility and Budget Management (FRBM) Act 2010 was further amended in March 2016 to implement the recommendation of the 14th Finance Commission award to manage the fiscal deficit target and limit the extent of annual borrowings.

Fiscal Deficit has been reduced to the level prescribed by Finance Commission and with diligent management of the State Government the debt GSDP ratio has been kept within manageable limit. The fiscal deficit refers to the gap between total receipts (excluding borrowings) and total expenditure. This gap, therefore, indicates the extent to which expenditure is financed by borrowings.