Trends in Revenue and Expenditure

The government’s collection of tax and non-tax revenue is declining, even though recorded GSDP has been growing steadily (chart2.11). Further, the low buoyancy of the state’s own taxes has resulted in the unsatisfactory performance of taxes (table 2.4). Except for state sales tax and vehicles in the unsatisfactory performance of taxes (table 2.4). Except for state sales tax and motor vehicles tax, buoyancies are well below one.Over the years, own –tax revenue as well as non-tax revenue (net of lotteries) as a proportion of GSDPhave fallen from a peak of 7.79 per cent and 10.07 per cent, respectively, in 1989- 90 t0 6.66 percent and, respectively, in 1998-99 and have been revised to 6.45 per cent and 4.74 per cent, respectively, in 1999-2000. As a result, total own receipts ( own- tax and non –tax) in terms of GSDP dropped by nearly 7 per cent during the period 1989-90 to 1997- 98.

Table 2.4:Buoyancies of the State's Own Taxes

Even within total state sales taxes, a category that has buoyancy in excess of unity, it is the Central sales tax (CST) collected on inter- state that has performed well. Sikkim collects CST at the rate of 4per cent on declared goods, which are goods specified under Section 14 of the CSTAct, 1956. However, the CST on commercial crops, such as cardamom, ginger and tea is levied at 3 per cent of sale value. Total revenue from CST was as much as Rs 1.27 crore out of total state sales tax revenues of Rs7.4 crore in 1995- 96. State sale tax had a buoyancy of only 0.931, indicating a falling share of such revenues in the GSDP.

The fall in the collection of tax and non- tax revenue by 5the state was compensated by a marginal rise in the share of Central taxes and a large increase in grants. In terms of GSDP during 1989- 90 to 1995-96, the share of Central taxes and grants have risen from 8.33 and 39.62 per cent, respectively, to 9.52 and51.08 per cent respectively. Although the share of Central taxes is expected to go up to 13.10 per cent, grants are expected to go down to nearly 43 per cent in 1999-2000. The composition of own revenues has also been changing over the years: in 1989- 90 ,0wn –revenues- both tax and non- tax (without lotteries)- constituted nearly 27 per cent of total revenue receipts (without lotteries) and the share is expected to go down to only 20.61 per cent in 1999- 2000.

The fall in non- tax revenue has been mainly due to poor collection from intrest receipts, profit and dividends, and economic services. The share of social services in non- tax revenue ( net of lotteries) has remained nearly stagnant while the shares of intrest receipts, etc and e conomic services have actually fallen.In economic services, the growth in yields has been particularly poor in education, health and road transport, indicating the non–revision or inadequate of user charges over the years.

Over the period 1989-90 to 1999-2000, capital outlays in terms of GSDP have fallen by more than 4 per cent. Capital outlay in terms of GSDP, after rising to 26.33 per cent in 1991-92 from 22.84 per cent in 1989-90, fell to 13.07 per cent in 1998-99. Though the proportion of public sector capital outlays in GSDP as well as the shares of both social and economic services in GSDP have been fluctuating over time, a clear downward trend in visible.

There has been a substantial rise in revenue expenditure during the late nineties, with a significiant jump in 1998-99 by more than 10 per cent points. The rise may be ascribed to the implementation of the Pay Commission recommendation. There is an apparent shift towards social services and away from economic services. A cause for concern is the steady rise in interest payment (in terms of GSDP) from 3.65 per cent in 1989-90 to 6.12 per cent in 1995-96 and projected at more than 9 per cent by 1999-2000. The rise in the interest burden is attributable to a shift in the composition of debt towards the more expensive internal borrowing, and saving and provident fund, away from loans and advances from the centre.

Sikkim’s fiscal health is good if judged by its revenue. The revenue balance has been in surplus every year since 1989-90 except for 1998-99. In 1998-99, the revenue surplus turned into a deficit of Rs 54.94 crore, but the problem appears to have been rectified, with a revenue surplus of Rs 48 crore budgeted for the year 2000-01. There is a problem, however, with the state’s high non-plan revenue deficits, which have increased from Rs. 3.39 crore in 1990-91 to Rs. 58.7 crore in 1997-98. The Eleventh Finance Commission estimate for 2000-01 show a very high non-plan revenue deficit of Rs.169.70 crore. The surplus on the revenue account is, therefore, primarily attributable to transfers from the centre on plan account, which have allowed the state to spend more than its borrowings on capital formation.

The fiscal deficit which had been fluctuating during this period at around 12 per cent has shown an upward trend in recent years. It went up to Rs. 146.86 crore in 1998-99 from Rs. 67.53 crore in 1997-98. As a percentage ofGSDP, the fiscial deficit touched an alarmingly high level of 20.91 per cent in 1998-99, up from 10.96 per cent in 1997-98. Payment of salary arrears arising out of pay revision as reflected in the profile of revenue expenditure led to a rapid rise in the fiscal deficit in 1998-99, a part of which was impounded into the provident fund. Budget estimates indiacate than the primary deficit is expected to decline from 10.6 in 1989-90 to 6.34 in 2000-01 after soaring to 12.98 in 1998-99. A steady rise in interest payment is exerting pressure on the government to economise on expenditures and limiting the primary deficit to make room for interest payments. (see table A3.9).

Debt