The Fifteenth Finance Commission holds meeting with the Government of Sikkim

The 15th Finance Commission headed by Chairman, Shri N.K. Singh alongwith its Members and senior officials met today with the Shri Prem Singh Tamang, Chief Minister of Sikkim alongwith his Cabinet colleagues and senior State Government officials.

The Commission observed that:

• The State has good potential in tourism, organic farming and horticulture. It may establish more cold storages, value chains and develop food processing industries.
• Sikkim was the first State to be declared Open Defecation Free (ODF) in India.
• Sikkim has the second highest per capita income and low BPL population:
  • Per capita income of Sikkim is ₹ 2,97,765 (second highest after Goa) while India’s average is ₹ 1,14,958 in 2017-18. Per capita income is more than double of the country’s per capita income.
  • Below poverty line (BPL) population in Sikkim is only 8.19% while the country’s average is 21.9% (Tendulkar methodology, 2011-2). Sikkim witnessed a significant decline in BPL population by 23 percentage points from 2004-05 to 2011-12.
• High share of GSDP from secondary sector: The production of electricity from hydropower units and production of the pharmaceutical industries increased the relative share of secondary sector which contributes about 59% of GSDP. Sikkim has good potential of hydropower sector. State should speed up the execution of the ongoing Hydel Projects so as to exploit the potential and to increase the revenue earnings.

Sound debt and deficit indicators:

• The fiscal deficit of the State has remained under 3% in recent years except in 2018-19 (RE). State is mostly revenue surplus. Debt to GSDP ratio has also remained moderate at 23.2% in 2016-17 which is lower than the average of 28.6% all North-East and Hill States. However, it has increased slightly in recent years. Also, AG Sikkim has informed of significant off-budget borrowings amounting to ₹ 3628 crores of the State Government.
• The introduction of State FRBM Act in 2010-11 provided the rule based fiscal management with defined deficit and debt targets. The State managed to avail the flexibility of increasing the fiscal deficit by 0.5 per cent in 2017-18 by satisfying the condition relating revenue surplus and debt stock as recommended by the FC-XIV.

According to the 5th Employment Un-employment survey of Labour Bureau 2015-16, Sikkim has second highest unemployment rate of 18.1 per cent (after Tripura). High per capita income and good share of secondary sector in GSDP is paradoxical to the high unemployment rate hinting towards jobless growth.

Sikkim has third lowest own-tax revenues out of all States, in spite of having second highest per capita income. Due to sparse own resource base, the State depends heavily on transfer of resources from the Central Government. It receives 75% of its total Revenue Receipts from Union Government.

The own non-tax revenue remains an important source of revenue for the State.   It constitutes about 40 to 50 % of the own revenue receipts. However, NTR has declined significantly in last few years due to fall in revenues from lottery. It has a trend growth rate of (-10.9%) from 2011 to 2018. State has potential to increase its earnings through Hydro-power sector and tourism which should be explored.

The Commission was informed that:        

There are 15 PSUs in the State out of which 7 are non-working. As on 31 August 2019, 11 accounts of four working SPSUs and one account of one non-working SPSU were in arrears.The accumulated losses of 9 SPSUs have increased from ₹ 53.82 crore (2012-13) to ₹ 1,013.27  crore (2017-18). (AG, Sikkim)

In Sikkim, the Energy & Power Department is solely responsible for supply of electricity in the State of Sikkim. Power Department of State Government does generation, transmission, distribution and trading of power. State Government gives heavy subsidy to rural consumers on electricity. Also, 15% of the consumers were not metered as on 31.03.2017.  AT&C losses are about 33% and ACS-ARR gap is 6.93 which is extremely high (M/o Power)State Government should take steps to corporatize and unbundle the power department and allow it to run on sound economic principles.

Sikkim is fully mountainous and geologically young and hence its structure is extremely fragile. It is also in the seismic zone IV and susceptible to earthquakes and it is prone to flash floods and landslides during the monsoon which starts from May to mid-October. Climate Change is posing risk from potentially dangerous glacial lakes in Sikkim Himalaya.

Sikkim faces the problem of high cost of infrastructure building and maintenance and compressed working season due to heavy rainfall.

The State faces difficulties in service delivery to a dispersed population living in hilly areas as the density of population is very low.

According to the State Government’s submissions:

• The FC-XIV projected the State GSDP based on a trend growth rate of 24.32% which was very high as compared to actual. It led to high calculation of OTR for the award period. Due to this, Sikkim became ineligible to get revenue deficit grants from the FC-XIV.
• Sikkim promotes organic farming and there is ban on chemical fertilizers and pesticides. Hence, it has no longer remained eligible for any compensation from large fertilizer subsidies which is available to farmers of other States. Cost of production in organic farming is usually high and increase in yield and income of the farmers take time to get sustained.
• TheState has suggested that farmers may be compensated in Sikkim for their eco-friendly initiative by making the State eligible for subsidy on fertilizers as revenue forgone.
• Sikkim Government has recommended that the States’ share in overall divisible pool of taxes should be increased to 50%.

Fund devolution should be made for all tiers of the local bodies.

Fund requirement for RLBs-

1. Projected requirement for both tiers of RLBs is ₹ 1,356.8211 cores for 5 yrs
2. Additional one time grant amounting to ₹ 1100 crores requested for support of human resources and building of panchayat ghar.

Fund requirement for ULBs

1. Projected requirement of ₹ 134.1163 crores  for 5 yrs
2. Additional one time grant amounting to ₹ 660 crores requested for basic infrastructure, ULB office, town halls and training institutes

The State has also asked for separate grants for Disaster Management.

Further, the State has also called for a “Peace Bonus” and a value of the amount of carbon sequestered by Sikkim’s forests.  The State has also made a state specific demands for big projects to create capital assets.  State has asked for a State Specific Grant of ₹ 26483 crore to bridge resource gap.

All inclusive the State has made a demand of ₹ 71623.97 crore to the 15th Finance Commission.

The meeting discussed in details all the State specific queries raised by the Chairman and Members.  The State was assured that all their issues would receive due attention of the Commission in its recommendations to the union government.                                                     

On the first day of its visit,  the Commission had a detailed meeting with the representatives of all the political parties in the State including Bhartiya Janta Party, Sikkim Pradesh Congress Committee, Sikkim Democratic Front and Sikkim Krantikari Morcha.   All the issues raised by the parties were noted by the Commission for addressing at the time of framing its recommendations.