Sikkim, Arunachal: High on per capita income, low on self-generated revenue

As the two states gear up for Assembly polls, Indivjal Dhasmana analyses their economy and dependency on the Centre for resources

Along with the first phase of the Lok Sabha elections, the 32-member Sikkim and 60-member Arunachal Pradesh Assemblies will also go to polls on April 19. 
 

These two northeastern states share many similarities, such as a higher per capita income than the national average and a dependence on the Centre for resources. However, they differ in one key aspect: Multidimensional poverty — Sikkim has very few people under this category, but Arunachal Pradesh’s numbers are close to the national average.
 

Let’s examine the political-economic landscape of these two states.


Sikkim
 

The incumbent Sikkim Krantikari Morcha (SKM) will face off directly with the Sikkim Democratic Front (SDF) in the Assembly polls. The Bharatiya Janata Party (BJP) and the Congress are also in the running. Despite being one of the two most prosperous states in the country in terms of per capita income (the other being Goa), Sikkim’s economy, dominated by agriculture or agro-based industries, is just a fraction of the nation’s.
 

 At 7,096 square km, the state’s area comprises 0.2 per cent of India’s, but the size of the economy is 0.1 per cent of the national economy over the years. Since its population is just 0.05 per cent of that of the country, in terms of both 2011 Census and estimation as of mid-July 2021, the per capita income of the state is now thrice that of the all-India level. For instance, per capita income of Sikkim stood at Rs 5,19,964 during 2022-23, while the national average was Rs 1,69,496.
 

For six years until 2022-23, this had been the case more or less; it was around 2.5 times the national per capita income in the previous three years, too.
 

However, the state’s own tax revenue (OTR) has never crossed 20 per cent of its total revenue receipts in the past 10 years, as the main activity of the state — agriculture — enjoys exemption or faces very few state taxes, including state GST. The state relies heavily on its share in the divisible pool of the central taxes and the grants from the Union government for its resources.

The rankings of these two heads — the share in divisible pool and Central grants — in the state’s revenue receipts, however, have kept changing over the past 10 years.  
 

In recent times, the state has managed to control retail price inflation much faster than at the all-India level. Inflation in the state stood just 3.6 per cent against 5.4 per cent at the national level in the first 11 months of FY24. The food and beverages inflation rate, which bothers the masses more than other items, stood at 5.7 per cent in the state, against 7 per cent at the all-India level during the period under review ( it was 5.5 per cent in Sikkim against 7.8 per cent nationally in February).
 

High per capita income of the state is also visible in the proportion of its people facing multidimensional poverty (2.6 per cent versus 14.96 per cent nationally during 2019-21) .

 

Arunachal Pradesh
 

In the land of the dawn-lit mountains, Arunachal Pradesh, there is a direct political contest between the ruling Bharatiya Janata Party (BJP) and the Congress. The Nationalist Congress Party (NCP), the National People’s Party (NPP), and the People’s Party of Arunachal, among others, are also in the fray. The elections will be contested across 50 seats, with BJP candidates set to be elected unopposed in 10, including the Mukto constituency where Chief Minister Pema Khandu is standing.
 

Arunachal Pradesh, the largest state in the northeast, constitutes 2.5 per cent of India’s landmass, spanning 83,743 square km. The state boasts a higher per capita income than the national average, although it falls short of Sikkim’s. Over the past nine years, the state’s per capita income has outpaced the all-India level by 18 -43 per cent. For instance, the per capita income in the state stood at Rs 2,28,650, which was 34.9 per cent higher than the national average during 2022-23.
 

However, the percentage of its population witnessing multidimensional poverty is only marginally lower than the national average (13.76 per cent versus 14.96 per cent during 2019-21). 
 

Its urban population has a slightly higher percentage of people experiencing multidimensional poverty at 5.9 per cent, compared to the all-India level of 5.27 per cent during 2019-21. But, 77 per cent of its population resides in rural areas, where 15.14 per cent face multidimensional poverty, lower than the national average of 19.28 per cent during the same period.

Like other northeastern states, Arunachal Pradesh relies heavily on central grants and its share in the divisible pool of Union taxes for its resources. 
 

Its own tax revenue (OTR) has never exceeded 13 per cent of its revenue receipts in the past 10 years.
 

The state has not published regular data for urban inflation. However, in rural areas, it has managed to control inflation more effectively than the national average in recent months. Retail inflation stood at a mere 3.1 per cent in its villages, compared to 5.6 per cent in rural India in the first 11 months of 2023-24. Inflation in food and beverages was as low as 1.39 per cent in rural Arunachal Pradesh, against 6.8 per cent in rural India during April-February of FY24.