Sikkim's Fiscal Challenges: A Deep Dive into Rising Deficits and Debt

Imphal, India Jul 27, 2026 ALN: Sikkim’s fiscal landscape has faced significant challenges in the fiscal year 2024-25, as highlighted by the latest report from the Comptroller and Auditor General (CAG). The state’s fiscal deficit has not only breached statutory limits but has also seen public debt surpass the prescribed ceiling. In addition, off-budget liabilities have escalated to over Rs 1,295 crore. This situation has unfolded against the backdrop of a robust economic growth rate, which has seen Sikkim recording double-digit growth while maintaining a revenue surplus.

The State Finances Audit Report for 2024-25 indicates that Sikkim’s Gross State Domestic Product (GSDP) grew by an impressive 11.15%, reaching Rs 53,340 crore. This growth trajectory has also translated into a significant rise in per capita income, which now stands at Rs 6.46 lakh—more than three times the national average of Rs 2.05 lakh. Such economic indicators reflect the state’s dynamic economic environment, driven largely by advancements in manufacturing and other secondary-sector activities.

Despite this impressive economic performance, the audit has raised concerns about the deteriorating fiscal position of the state. The fiscal deficit has widened alarmingly to Rs 2,980 crore, which translates to 5.59% of the GSDP. This figure is significantly above the 3% ceiling stipulated under the Fiscal Responsibility and Budget Management (FRBM) Act. Furthermore, public debt has climbed to 28.09% of GSDP, marginally exceeding the 28% threshold, thereby raising alarms about the sustainability of the state's fiscal policies.

There is also a critical concern regarding undischarged liabilities, which encompass off-budget borrowings, unpaid interest obligations, and short transfers to the National Pension System (NPS). These liabilities have reached Rs 1,295.42 crore, representing 10.42% of the state’s total expenditure of Rs 12,431.62 crore. Such liabilities not only indicate financial strain but also suggest that the government may be relying on unsustainable fiscal practices to meet its obligations.

Interestingly, while the government has managed to maintain a revenue surplus of Rs 482.43 crore, indicating that its recurring revenues surpass day-to-day expenditures, it has still necessitated heavy borrowing to finance capital expenditures and other obligations. The total expenditure for the year was recorded at Rs 12,431.62 crore against total receipts of Rs 12,454.46 crore, highlighting a narrow margin that could easily be affected by economic fluctuations.

Revenue rises, but dependence on Centre continues

On the revenue front, Sikkim has seen an increase in revenue receipts by 13.17% year-on-year, amounting to Rs 9,451.25 crore. This growth has been primarily fueled by stronger Goods and Services Tax (GST) collections and an increased share in central taxes. Tax revenue has risen to Rs 6,904.97 crore, with the state’s share of Union taxes climbing to Rs 5,090.10 crore, which accounts for over half of the total revenue receipts.

However, the state’s own revenue generation remains relatively modest. The combined total of state tax and non-tax revenues is Rs 2,724.92 crore, juxtaposed against central grants of Rs 1,636.23 crore. This stark contrast underscores Sikkim’s ongoing dependence on financial transfers from the central government. Alarmingly, the growth rate of the state’s own revenue has slowed to 3.9%, significantly lagging behind the pace of GSDP expansion.

Within the realm of state taxes, the State GST has emerged as the largest contributor, generating Rs 970.14 crore. This is followed by State Excise collections, which yielded Rs 506.18 crore. However, vehicle taxes have seen a rise to Rs 76.27 crore, while revenue from taxes on sales and trade has sharply declined to Rs 146.65 crore from Rs 238.19 crore in the previous year, indicating potential weaknesses in the state’s economic activity.

The audit highlighted significant discrepancies between budget estimates and actual outcomes. For instance, against budgeted revenue receipts of Rs 10,749 crore, the government managed to realize only Rs 9,451 crore, achieving just 87.9% of its target. The largest shortfall was observed in grants-in-aid, where actual receipts amounted to Rs 1,636 crore—merely 58% of the budget estimate.

Revenue expenditure for the state reached Rs 8,968.82 crore, whereas capital expenditure was recorded at Rs 3,462.80 crore. The latter figure slightly exceeded the original budget estimate but still fell short of the revised estimate. This indicates that while the government is attempting to invest in capital projects, it is not fully meeting its own projections, which could hinder future growth and infrastructure development.

Moreover, the CAG report pointed out that committed expenditure—comprising salaries, pensions, and interest payments—constituted a staggering 73.4% of revenue expenditure. This leaves minimal fiscal space for developmental and infrastructure spending, which are crucial for sustaining economic growth and improving public services. Interest payments alone surged to Rs 948.59 crore during the year, further constraining the state’s fiscal flexibility.

Sikkim’s total liabilities have seen an increase of 18.2% during the year, amounting to Rs 28,438 crore. Internal debt rose by 14.5% to Rs 12,704 crore, while loans and advances from the Government of India nearly doubled to Rs 3,667 crore. Additionally, reserve funds expanded by nearly 40%, and cash balances increased by almost 34%. Gross capital assets also grew by 16.4%, reaching Rs 24,530 crore. While these figures indicate some positive trends, they also reflect an increasing reliance on debt to finance state operations.

Beyond the core fiscal indicators, the audit flagged several governance and financial reporting issues that warrant attention. The report noted that off-budget borrowings have diluted budget transparency, while revenue generated from electricity sales has been maintained outside government accounts, which violates the provisions of Article 266 of the Constitution. This lack of transparency can lead to mismanagement of funds and erode public trust in government financial practices.

The CAG also highlighted delays in the submission of utilization certificates dating back to 2002-03, pending accounts of autonomous bodies, and the continued use of Minor Head 800 for recording receipts and expenditure. Furthermore, there remains an excess expenditure of Rs 16.82 crore from earlier financial years that has yet to be regularized by the legislature. Such issues indicate systemic inefficiencies within the financial management framework of the state.

Nonetheless, the audit did recognize several positive developments within Sikkim’s fiscal management. The state has successfully maintained a revenue surplus for another consecutive year and has strengthened the implementation of the Single Nodal Agency (SNA) mechanism for centrally sponsored schemes. The improved tracking of funds through SNA-SPARSH and sustained growth in capital expenditure over the past five years are also commendable achievements. Notably, Sikkim’s contribution to India’s GDP has increased from 0.24% five years ago to 0.28% in 2024-25, reflecting the state’s growing economic importance.

However, the auditor concluded that the rising debt levels, increasing committed expenditure, and continued reliance on borrowings pose significant risks to the state’s fiscal sustainability. To address these challenges, the report recommends augmenting the state’s own revenues, exercising tighter expenditure controls, improving transparency in off-budget financing, and adopting more realistic budget projections. These measures are essential for ensuring long-term fiscal stability and safeguarding the economic future of Sikkim.