GOVERNMENT OF SIKKIM MEMORANDUM TO THE FOURTEENTH FINANCE COMMISSION VOLUME – I FINANCE, REVENUE & EXPENDITURE DEPARTMENT 1 Chapter I .......................................................................................................................................... 1 1 Introduction .................................................................................................................................... 1 1.1 Sikkim: Geographical Features ................................................................................................ 4 1.2 Human Resource Development .............................................................................................. 5 1.3 Issues to be considered by the 14th Finance Commission ...................................................... 7 2 Chapter II ....................................................................................................................................... 15 2.1 Macroeconomic Outlook ...................................................................................................... 15 3 Chapter III ...................................................................................................................................... 19 3.1 Fiscal Profile of Sikkim ........................................................................................................... 19 3.2 Fiscal Responsibility and Budget Management Act 2010-11 ................................................ 19 3.3 Revenue Mobilization ........................................................................................................... 21 3.4 Own Revenue Trend ............................................................................................................. 24 3.5 Non-tax Revenue Profile ....................................................................................................... 26 3.6 Central Transfers ................................................................................................................... 28 3.7 Expenditure Profile ............................................................................................................... 29 3.8 Outstanding Debt and Government Guarantee ................................................................... 31 3.9 Public Expenditure Management ......................................................................................... 34 3.10 Fiscal Reforms and Expenditure Management Measures .................................................... 36 3.10.1 Adopting Rule Based Fiscal Management (FRBM) ........................................................ 36 3.10.2 Treasury Computerization ............................................................................................ 36 3.10.3 Computerization in Commercial Taxes Division ........................................................... 36 3.10.4 The Sikkim Integrated Financial Management System (SIFMS), ................................... 37 3.10.5 Reform of Pension System ............................................................................................ 38 3.10.6 Changes in tax Rate and Base ....................................................................................... 38 4 Chapter IV ..................................................................................................................................... 41 4.1 Devolution of Union Taxes and Duties.................................................................................. 41 4.2 Developments in the Divisible Pool for Tax Sharing ............................................................. 42 4.3 The Size of Overall Vertical Fiscal Transfers .......................................................................... 42 4.4 Vertical Distribution of Central Taxes ................................................................................... 43 4.5 Criteria for Tax Sharing ......................................................................................................... 44 5 Chapter V ...................................................................................................................................... 49 5.1 Grants-in-Aid under Article 275 ............................................................................................ 49 5.2 Principles of Grants under Article 275 .................................................................................. 49 5.3 Non-plan Grants for Sikkim under 13th Finance Commission ............................................... 51 6 Chapter VI ..................................................................................................................................... 54 6.1 Ecology and Environment ..................................................................................................... 54 6.1.1 Two Major Issues Relating to Ecology and Climate Change ......................................... 54 7 Chapter VII .................................................................................................................................... 67 7.1 Goods and Services Tax ......................................................................................................... 67 8 Chapter VIII ................................................................................................................................... 70 8.1 Financing Disaster Relief Expenditure .................................................................................. 70 8.2 Financing the Relief Expenditure .......................................................................................... 71 9 Chapter IX ...................................................................................................................................... 77 9.1 Local Bodies in Sikkim ........................................................................................................... 77 9.2 Evolution of Local-Self Governance in Sikkim ....................................................................... 77 9.3 Status of Decentralized Governance and Devolution ........................................................... 79 9.4 Devolution of Powers & Activity Mapping ............................................................................ 80 9.5 Audit of Accounts .................................................................................................................. 81 9.6 State Finance Commissions .................................................................................................. 81 9.7 Own Revenues of Local Bodies ............................................................................................. 82 9.8 Elections ................................................................................................................................ 82 9.9 Suggested Approach for the Fourteenth Finance Commission for Local Bodies in Sikkim .. 83 10 Chapter X ................................................................................................................................... 90 10.1 Summary ............................................................................................................................... 90 10.2 Broad Issues to be considered by the 14th Finance Commission Regarding Sikkim ............. 90 1 Chapter I 1 Introduction The constitution of Fourteenth Finance Commission, as mandated by the Article 280 of the Constitution, provides an opportunity to the State yet again to reaffirm its faith on the spirit of the fiscal federal system and the Constitutional process governing the country. The Commission will make recommendations regarding the sharing of Union taxes, principles governing Grants-in-aid to the States and transfer of resources to local bodies taking into consideration the terms of references (TOR) provided to it. The State of Sikkim welcomes the Fourteenth Finance Commission and expects that the Commission would design a rational transfer system while taking into consideration the needs of state like Sikkim. Despite the capacity constraints, cost disabilities, and inherent disadvantages posed by a difficult geographical terrain for service delivery constraints, the State has made determined effort to improve the living standard of its people and provide them quality services within the limited resources that was available to it. The outcomes reflect the endeavors, which have been recognized at every level. The State has been very thankful to the previous Finance Commissions for their understanding of the situation of the State and efforts to provide improved level services to the people. Since its integration with India in 1975, Sikkim has earned the distinction of one of the progressive States with steady rise in socio-economic indicators. During the last 38 years, after joining with India, the State attempted to overcome the disadvantages posed by the geographical and topographical constraints by adopting policies that are sustainable and eco- friendly. Sikkim has carved out a special position as one of the most peaceful States, although it is surrounded by three international borders. The State government has created an enabling environment for different sections of the society, different tribal groups, women, and young people to participate in economic activities and contribute to the development of the State. Rural development has been given primary focus through several policy interventions to improve the rural livelihood and creation of income opportunities. Decentralization of power to rural local bodies