In Sikkim, the annual state budget, approved by our lawmakers, doesn’t receive the attention it deserves, despite its significant impact on our lives. There is very little formal or informal debate about the budget within our society. This lack of engagement may be due to the technical nature of the budget, which many people find difficult to understand. Other reasons include a general lack of awareness about the budget’s importance and the exemption Sikkimese receive from paying income tax. While some of you may have a good understanding of the budget and have thoroughly analysed it, I want to simplify a few basic concepts for those unfamiliar with it.
Understanding the Basics
Imagine two families with the same income level. Their living standards may differ depending on how wisely the head of each family prioritises their needs. One family might value education over entertainment, while the other might do the opposite. The basics of managing a government budget are similar to running a household. Just as a family may have various sources of income—such as salaries, rent, and interest on deposits—the state government generates revenue primarily from taxes, non-tax revenues, and grants-in-aid from the central government. This revenue is spent on two types of expenditure: revenue and capital.
Like a family spending a portion of its income on essentials like food, clothing, education, and transportation, the state government allocates a substantial portion to revenue expenditures, including salaries, pensions, and interest payments. On the other hand, capital expenditures are investments made to generate future income, such as building roads, bridges, schools, and hospitals.
When the estimated annual expenditure exceeds the revenue from all sources, the state resorts to deficit financing, which involves covering shortfalls through borrowings, issuing bonds, and taking loans from various financial institutions. The difference between total expenditure and revenue, excluding borrowings, is the state’s fiscal deficit, generally measured as a percentage of the Gross State Domestic Product (GSDP). With this background, let us examine the budget for 2024-25.
State Budget 2024-25
On July 23, 2023, Nirmala Sitharaman, the Finance Minister, presented the Union budget for the fiscal year 2024-25, amounting to Rs. 48.21 lakh crore. Sikkim received an allocation of Rs. 4839.17 crore from the net proceeds of Union taxes and duties, accounting for 0.388%.
Subsequently, on August 7, 2024, Shri P.S. Golay, the Hon’ble Chief Minister of Sikkim, presented the state budget for 2024-25, totaling over Rs. 14,000 crore during a four-day budget session. While the HCM has already elaborated on the merits of the budget in his speech, this article aims to critically analyse it.
State’s Revenue vs. Expenditure
Around 75% of the budget is expected to be spent on revenue expenditures, while only 25% is allocated to capital expenditures, which typically have higher fiscal multipliers. Revenue receipts—including tax revenue, non-tax revenue, central assistance, and grants—are just sufficient to cover salaries, pensions, interest payments, and other revenue expenditures. The state’s capital expenditures for the current year are primarily funded through loans and borrowings.
The state’s Gross State Domestic Product (GSDP) has surpassed the Rs. 50,000 crore mark, with the manufacturing sector being the largest contributor at over 60%, followed by the service sector. The agriculture sector contributes the least. Consequently, the per capita income of Rs. 7,00,000 stated in the budget may not accurately represent the average income of a resident of Sikkim. With a per capita income of Rs. 7,00,000, the entire population of the state should be earning an average monthly income of Rs. 60,000. The fact that youths in Sikkim are still seeking jobs with monthly salaries of Rs. 9,000 to Rs. 10,000 highlights the severe issue of income distribution.
The state’s tax revenue is increasing but at a slower pace compared to 2023-24. Non-tax revenue has decreased sharply by 14.08% this fiscal year, possibly due to the devastation caused by the Glacial Lake Outburst Floods (GLOF) and subsequent disinvestment in power projects. Furthermore, the state has projected an exceptional 16.81% increase in central transfers for 2024-25.
Figure 1: Percentage Change in Revenue
Despite the expected sharp increase in revenue expenditure due to mass recruitment under the One Family, One Job (OFOJ) scheme and mass regularisation, the growth in revenue expenditure, including salaries, is lower than in the last two fiscal years, when no such mass recruitment or regularisation took place.
Figure 2: Percentage Change in Expenditure
Over the past ten years, the state’s consolidated debt has increased by 422%, currently standing at Rs. 22,380.62 crore, which accounts for 42.59% of the state’s GSDP. In a 2017 interview with the Sikkim Express, the late Shri Nar Bahadur Bhandari, former Chief Minister, highlighted increasing debt as the biggest threat to the state. At that time, the consolidated debt was approximately Rs. 5,500 crore, and he warned that unchecked growth could lead to a financial crisis. With the current debt now at Rs. 22,380.62 crore, immediate and decisive measures are essential to bring it under control.
Figure 3: Growth in Consolidated Debt
Capital Outlay
The table below shows that the capital outlay differs from the government’s prioritisation of BIPASA (Bijli, Pani, and Sadak). The capital outlay for the power sector has declined by 10.97% compared to the revised budget estimates of 2023-24. Water supply fell by 1.77%, and roads & bridges by 24.10%. Sectors crucial for the economy, such as education, tourism, and health, experienced budget cuts of 31.44%, 32.59%, and 2.11%, respectively. The Urban and Rural Development Departments experienced a significant decline in annual capital outlay this year. Only sectors like public works, housing, and special area programs saw increased capital outlay this year.
Figure 4: Capital Outlay
Mega Schemes: Do We Need Them?
To boost tourism, several schemes have been implemented, including converting the Singshore Bridge into a glass skywalk, operationalising the ropeway from Dhapper to Bhaleydhunga at Yangang, and completing a passenger ropeway from Pelling Helipad to Sangacholing Monastery hilltop.
One particularly notable project is the establishment of a state-of-the-art Convention Center at Namli, Gangtok, at a whopping cost of Rs. 900 crore. This center is designed to accommodate 2,000 people and will feature a conference hall, a mini-conference hall, meeting and banquet rooms, guest houses, and a heated swimming pool. However, the impact of this mega project on boosting tourism remains unexplained. Heavy investment in one mega project is always risky, and if not thoroughly studied, it may become a dead investment, as was the case with the Cultural Park at Yangang and the partially functional Pakyong airport.
With such a substantial fund at its disposal, the government could have allocated Rs. 30 crore to each constituency for essential and feasible projects. This allocation could have reached many hands, increasing their purchasing power and boosting demand and the economy. The HCM also mentioned steps to encourage health tourism in the state, which typically includes wellness and medical tourism. While improved connectivity may make wellness tourism feasible, medical tourism—which encompasses diagnosis, treatment, cure, prevention, and rehabilitation—seems unlikely in the short term.
Despite having the country’s second-largest hospital, Sikkim still struggles to meet its people’s healthcare needs. Medical tourism requires better road and air connectivity, top-tier medical professionals, and advanced health technology. Given our population size, attracting doctors from metro cities may be challenging, as it may not be economically rewarding for them.
We recommend that the government prioritise improving basic infrastructure such as roads, water supply, and electricity. It is also crucial to focus on enhancing the quality of education and healthcare facilities. Increasing financial investment in rural areas is essential, as this is where the highest demand is generated, driving our economy.’
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