The Dual Reality of Sikkim: Prosperity with a Price

CB CHHETRI

Sikkim has recently made national headlines for two contrasting reasons. On the one hand, the state government proudly claims that Sikkim now leads the country in per capita income, with an average income exceeding Rs. 7 lakh per annum. On the other hand, opposition parties have highlighted a less impressive statistic: Sikkim also has the highest per capita debt in India. What is interesting is that both statements are statistically true. So, are we the wealthiest citizens in the country or the most indebted? In this article, we explain the significance of these figures and what they imply for our state’s economy and people.

Understanding State Debt

In our daily lives, we take loans to build houses, buy cars, invest in land, and make other similar meaningful investments. Similarly, the government borrows funds for capital expenditure. While we do not take loans for everyday expenses like groceries, we borrow when we expect returns from the investment. Governments, too, borrow for projects that are expected to generate long-term benefits.

However, if loans are not managed carefully—whether by individuals or by the state—they can lead to a debt trap. Cases of personal property being seized by banks due to loan defaults have become increasingly common, as reported in local newspapers and on social media. This highlights the need for caution when taking loans and choosing the right project to fund. Investing in the wrong ventures can trap both individuals and governments in debt, with consequences that may affect future generations.

The Constitution of India, under Article 293, allows state governments to borrow against the security of the Consolidated Fund. The borrowing limit is set by the central government. Besides direct borrowing, states also provide guarantees on loans raised by public sector undertakings. These guarantees, often not reflected in the budget, can significantly add to the financial burden.

Table 1: Outstanding Internal Debt and Borrowings from the GoI.

       (Figures in Crores)

Source: SFAR, 2023 & AFS 2025-26

The total outstanding liabilities of the state at the end of a financial year comprise public debt and public account liabilities. Public debt includes internal debt and loans from the central government. Public account liabilities include provident funds, savings, and reserve funds. As of March 2023, the state’s public account liabilities stood at Rs. 3,484.01 crore. Table 1 presents the growth in internal debt and central government loans over recent years, excluding public account liabilities.

Over just seven years, Sikkim’s internal debt has more than tripled, while loans from the central government have surged over 46 times. The spike since 2020-21 has been particularly steep. But the raw figures alone do not tell the full story. It is important to consider the size of the state economy, which is measured by its Gross Domestic Product (GDP), to understand how burdensome its debt reality is.

Figure 1: Outstanding liabilities as a percentage of the state’s GDP.

Source: Budget Analysis 2025-26 report by PRS India.

Debt-to-GSDP: A Troubling Picture

Outstanding debt as a percentage of GDP is a commonly used measure to assess fiscal health of an economy. Sikkim’s outstanding debt is projected to reach 38.2 percent of its GDP by the end of 2025-26, which is well above the fiscal target set by the state at 27.9 percent set in the latest Medium Term Fiscal Policy document. Over the past six years, the ratio has increased by more than 16 percentage points.

Adding to the concern, the state has extended guaranteed worth Rs 4,444 crore to State Public Sector Enterprises (SPSEs) as of March 2024, accounting for about 9 percent of the GSDP. These contingent liabilities, though not immediately due, represent potential future risks to the finances of the state.

The Per Capita Income Puzzle

Against this backdrop, how does one interpret the statistic that Sikkim has the highest per capita income in India? According to the latest estimates, the state’s per capita GSDP at current prices stands at over Rs 7 lakh, compared to the national average of Rs 2.15 lakh. This implies that the average income in Sikkim is more than three times the national figure.

But this average can sometimes be misleading: Just like a family where one member earns 80 percent of the total income of the family while the rest contributing just 20 percent, a high per capita income does not mean that everyone is well-off. Much depends on who is contributing to the income.

Sikkim’s GSDP has doubled since 2018-19, indicating strong macroeconomic growth. However, when compared with the quadrupling of public debt over the same period, concerns about the sustainability of this growth become more pressing.

Table 2: Gross Domestic Product of Sikkim (GSDP)

(GSDP figures in Crores)

Source: PRS, India and SAR 2023.

Unequal Contributions: Industry Dominates

Nearly half the workforce is engaged in agriculture, which contributes just 9 percent to the economy. The services sector, accounting for 40 percent of jobs, adds 28 percent to value added. Meanwhile, industry contributes a staggering 63 percent to the economy but provides employment to only 14 percent of the workforce.

Table 3: Sectoral Contribution in GSVA & Employment

(Figures in %)

Source: Macro & Fiscal Landscape of Sikkim, NITI Aayog, March 2025.

The dominance of the industrial sector is largely due to capital-intensive enterprises such as pharmaceutical and hydroelectric power companies. Many of these firms have their headquarters outside Sikkim implying that a significant portion of the profits may not remain within the state. This disconnect between income generation and employment suggests that large sections of the population, especially those working in agriculture or enrolled in low-wage government schemes, may be largely excluded from the benefits of economic growth.

The growing share of employment in the services sector may partly represent the impact of the One Family One Job scheme, which provides temporary government employment to one person in every household. While the scheme has created jobs, many of these positions are ad hoc in nature and offer only modest salaries, contributing little to overall income growth.

A Dual Reality

The paradox of Sikkim is now clearer. On paper, the state is the richest in India by average income. Yet, a significant share of its population, especially those dependent on agriculture, remains economically vulnerable. Moreover, Sikkim is among the states with the lowest internal revenue generation, thereby making it heavily reliant on central transfers and borrowings to meet its expenditure. This raises questions about its ability to repay rising debt.

In short, the simultaneous rise in per capita income and debt presents a dual reality for Sikkim. While industrial growth, largely driven by Pharmaceutical companies, has strengthened macroeconomic indicators, the gains have not been broadly shared. There is an urgent need to improve incomes from productive sectors such as agriculture, which still employs a large share of the population.

At the same time, the expansion of service sector employment, often through low-paid and temporary roles, risks shifting people out of agriculture without improving their quality of life. This trend highlights the need for better quality jobs that offer stability and meaningful income. Unless employment opportunities are diversified, revenue mobilisation strengthened and debt managed responsibly, the fiscal health of the state will remain under pressure. The people of Sikkim may not yet be the wealthiest citizens, but they are certainly among the most indebted.

(Views are personal. Email: cbchhetri.ewa@gmail.com)