Spend and Perish

CHANCES ARE YOU have never heard of Rao Matadin Yadav Marg. It is an arterial road at the edge of Delhi right next to Haryana as one enters Gurugram. The road is in a decrepit condition to the point that it is hard to figure whether craters pockmark the road or the road exists in patches between craters. Yet this road that sees traffic almost 24 hours without break has not seen repairs of any kind for the past two years.

For anyone observing Delhi’s finances there is nothing surprising in this state of affairs. Roads, bridges and flyovers across the national capital are in need of urgent repair and mainte­nance and there are no signs of such work. When compared to other states, Delhi spends pre­cious little on infrastructure, especially its roads. On average, all states spent 4.6 per cent of their total expenditure on roads and bridges in 2023-24 while Delhi is expected to spend just 2.6 per cent in 2024-25 (budget estimates). The national capital’s spending priorities are very different.

Delhi has been touted as a ‘model’ for other states. Pictures of swanky new schools equipped with the latest teaching aides are one side of the story. This story is incomplete without the pictures of garbage-clogged drains run­ning through residential areas that have no access to potable water and other basic amenities.

It has also been presented as a model of how to manage compet­ing demands within limited means. Here, again, the picture is mis­leading. The reality of Delhi’s fiscal health is a deceptive subject.

On paper—if one goes by the numbers presented in the state government’s budget document—Delhi is a revenue-surplus state, barring an odd year or so when it was in deficit. A govern­ment is revenue-deficit when its expenditure on the revenue ac­count is more than its revenue receipts which, in turn, are the sum of its tax and non-tax revenue. In the budget this year (2024-25), Delhi will have a revenue surplus of ₹3,231.9 crore. In 2023-24, this sum was ₹5,768.61 crore and in 2022-23, this figure stood at ₹7,601.24 crore. The only qualm could be that the quantum of the surplus was falling. But again, there is nothing unusual here, sometimes the government spends more, sometimes less, and revenue deficits wobbling up and down are par for the course.

But Delhi—a jurisdiction with one of the highest per capita incomes across India—has a secret in its public finances. At the heart of its revenue-surplus situation is a massive binge of loans against small savings. Small savings are government schemes, such as National Savings Certificates (NSC), Public Provident Fund (PPF) and postal deposits, among other schemes. Since 2011, states can borrow from the National Small Savings Fund (NSSF)—the fund where small savings are credited—anywhere from 50 to 100 per cent of the net collections within their territory.

When Arvind Kejriwal became chief minister of Delhi in 2015, Delhi did not undertake any loan against small savings that fiscal (2014-15). But from 2015-16, borrowings against these savings rose steadily. In 2015-16, this sum was ₹900 crore. In the last three financial years—2022-23, 2023-24 and 2024-25—these loans have climbed to ₹10,000 crore every year. If one subtracts these sums from Delhi’s revenue receipts, a dramatically different picture emerges. In 2022-23, Delhi had a revenue deficit of ₹2,398.76 crore instead of a surplus of ₹ 7,601.24 crore. The next year, 2023-24, the revenue deficit increased to ₹4,231.39 crore instead of a budgeted revenue surplus of ₹5,768.61 crore, and in 2024-25—the current fiscal—the revenue deficit will be ₹6,768.81 crore instead of a projected revenue surplus of ₹3,231.9 crore.

This is the opposite of the rosy picture given in Delhi’s budgets. Loans against small savings have been a subject of heated controversy in the capital’s political circles. The state opposition has criticised the Aam Aadmi Party (AAP) for using these loans while AAP has defended its right to avail the same. On paper, AAP is right: states indeed have the right to borrow against small sav­ings. But the issue is different: Why does Delhi, one of the most prosper­ous parts of India and where the government has ample sources of revenue, have to borrow against small savings?

Then there is the issue of how these borrowings have been used. Delhi’s crumbling civic infrastruc­ture—from its decrepit roads to its awfully underdeveloped regions, places such as Mustafabad, Karawal Nagar, Seelampur, Jahangirpuri to just name a few—tells a very differ­ent story. None of these loans has been used to improve the situation in its underbelly, the areas where the working class and the poor live.

The reality is that Delhi’s politics is now a web of subsidies and doles on the one hand and decaying civic infrastructure on the other. It is politically useful to give consumption doles to people even as they are deprived of the infrastructure necessary to lead a dignified life.

This change in the financial fortunes of the Delhi government mirrors its spending priorities, especially subsidies. A 2021 report by the Comptroller and Auditor General of India (CAG), which scrutinised state finances for the year that ended in March 2020, found that Delhi’s subsidies had ballooned by 92 per cent between 2015-16 and 2019-20. On paper, these subsidies were a fraction of the state’s overall expenditure but the pattern of spending said something. These subsidies were 9 per cent of the Delhi govern­ment’s revenue expenditure. In just one year (between 2018-19 and 2019-20) they increased by nearly 42 per cent.

Last March, in her budget speech, Delhi’s Finance Minister (and now Chief Minister) Atishi had said, “[T]here are 58.86 lakh domes­tic electricity consumers in Delhi currently, out of which 68.33 per cent, that is, 40.22 lakh domestic electricity consumers, are getting the benefits of electricity subsidy from the Kejriwal Government. In 2023, around 3.41 crore zero electricity bills were issued to con­sumers. We will continue this subsidy scheme this year also.” What was left unsaid was the cost of such heavy subsidisation of electric­ity consumption. In 2024-25, power subsidy alone accounted for ₹3,250 crore. In the revised budget, another ₹350 crore was added for that purpose, taking the sum to a tidy ₹3,600 crore, more than the entire bill of subsidies outlined in the 2021 CAG report.

THERE ARE OTHER subsidies as well. Two major subsidies are those for water and transportation. In 2024-25, the wa­ter subsidy bill is estimated at ₹600 crore. The transport subsidy bill comes to ₹394 crore. The latter includes subsidy to the Delhi Transport Corporation (DTC) for female commuters (`200 crore), subsidy to cluster buses for female commuters (`140 crore) and subsidy to DTC for concessional passes (`54 crore). But this subsidisation is an underestimate. The deployment of marshals on DTC buses (`100 crore) and another ₹40 crore in the case of their deployment on cluster buses is not technically a subsidy, but the entire expenditure is being made by the Delhi government and not DTC. Not exactly productive and not technically a subsidy, this expenditure is nevertheless recurring. Parsing the expenditure on the transport sector—including a ₹2,850 crore grant to bridge the deficit to DTC—shows very little productive spending. In all, across nine departments, the Delhi government has more than two dozen subsidy schemes. The subsidy bill today (in 2024-25) stands at almost ₹11,000 crore, up from ₹1,554 crore back in 2014- 15. Today, the expenditure on subsidies is close to 15 per cent of the total expenditure. Had the cash dole of ₹1,000 per month to women been started, this figure would have galloped further.

The recently released Household Consumption Expenditure Survey for 2022-23 (HCES) shows that Delhi has a higher monthly per capita expenditure (MPCE) for both its rural and urban areas when compared to the national average. Its rural MPCE stood at ₹6,576 compared to the national average of ₹3,773 (74 per cent higher than the national MPCE). For urban areas in Delhi, this fig­ure was ₹8,217 compared to the national MPCE of ₹₹6,459 (27 per cent higher). A better comparison in this case is with other Union territories (given the size of the territories in question). Here, too, Delhi does not compare unfavourably: it ranks behind Chandigarh, the Andaman & Nicobar (A&N) Islands, and is almost on a par with Puducherry (for rural MPCE). Only Ladakh, Jammu & Kashmir (J&K), Lakshadweep, Dadra and Nagar Haveli, and Daman and Diu rank behind Delhi. But even these comparisons are somewhat im­perfect: A&N have a much smaller population; the erstwhile J&K is a very different entity; and so on. Yet none of these UTs subsidises its residents as heavily as Delhi does. This, even after one considers the lower MPCE in many and the far more challenging economic circumstances prevailing in those places.

There is, of course, a major difference between these parts of India and Delhi—none of these places has an arch-populist party in power, and one with national ambitions. The politics of AAP, Delhi’s deteriorating fiscal health and proliferation of subsidies are a study in decay.

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