Delhi battles financial strain amid freebies and faces declining budget allocations

(Sanghnomics is a weekly column that tracks down and demystifies the economic world view of Rashtriya Swayamsevak Sangh (RSS) and organisations inspired by its ideology.)

As the mercury seems to be dipping in Delhi with the onset of winter, the political temperature is soaring, with the capital all set to go to the polls for the Assembly elections within the next couple of months.

The Aam Aadmi Party (AAP) has ruled the state for nearly a decade and is taking the lead in offering 'freebies' to voters. This comes despite the fact that the financial health of the Delhi government is under scrutiny. The government has been reducing outlays for crucial sectors and has already sought a loan of ₹10,000 crores from the National Small Savings Fund (NSSF) for the financial year 2024-25.

Budget Outlays

The AAP government’s 2024-25 budget for Delhi reveals some serious indicators that should set alarm bells ringing. According to an analysis by PRS Legislative Research, the capital outlay for 2024-25 is proposed to be ₹5,919 crore, a decrease of 29% from the revised estimate for 2023-24.

It is important to note that capital outlay refers to expenditure towards the creation of assets. Moreover, the Delhi government does not have to bear expenses in certain key sectors, as these are borne by the central government. For example, Delhi Police comes under the Union Ministry of Home Affairs. ₹11,178 crore has been allocated for the establishment expenditure of Delhi Police in 2024-25 from the Union Budget.

In 2024-25, key sectors with a decrease in capital outlay compared to the revised estimate for 2023-24 include transport (₹2,433 crore lower), education (₹543 crore lower), and health (₹402 crore lower), according to the report.

In 2023-24, Delhi’s capital outlay is estimated to be 25% lower than originally budgeted. Key sectors with a lower estimated capital outlay compared to the budget include roads and bridges (₹950 crores lower), urban development (₹776 crore lower), and health (₹742 crore lower).

"Between 2015-16 and 2021-22, on average, Delhi spent 39% less on capital outlay than originally budgeted. This was much higher than the average underspending on capital outlay by other states (19%)."

Budgetary Management

The Comptroller and Auditor General of India (CAG) has raised questions about the budgetary management. In its latest audit report for the year ending March 2020, the CAG observed, “In 39 sub-heads under seven grants (one crore or above in each case), the entire provision of Rs 196.76 crore remained unutilised by the departments or was remitted back to Government before the closure of the financial year 2019-20.

Out of the total expenditure of ₹51,186.26 crores (excluding recoveries of ₹323.77 crore) during 2019-20, ₹16,207.83 crore (31.66%) was incurred in the last quarter, and ₹2,355.21 crore (14.53%) of this was spent during March 2020. Furthermore, in eight sub-heads under two grants, the entire expenditure of ₹428.53 crore was incurred in March 2020.

Quality of Accounts and Financial Reporting

According to the CAG report, in the Transport department, test checks of transactions for the financial year 2019-20 revealed that government receipts were not deposited timely in the government account. Audit noted that ₹1,005.65 crores was deposited with delays ranging from 4 to 61 days, resulting in a loss of ₹4.81 crore in interest. During this period, the amount remained outside the Consolidated Fund of the State.

The CAG also noted that 1,126 Utilisation Certificates (56.33%) amounting to ₹134.52 crore were outstanding prior to the year 2011-12, while 873 UCs (43.67%) amounting to ₹6,722.45 crore were outstanding from 2011-12 to 2018-19.

“As of March 2020, a total of 5,225 AC bills involving ₹774.47 crore were outstanding. Forty-nine government departments did not submit 730 bills amounting to ₹266.27 crore before closing the accounts for the financial year 2019-20. Therefore, there is no assurance that the expenditure of ₹266.27 crore has actually been incurred during the financial year for the purpose for which it was authorised by the legislature,” said CAG report.

State Public Sector Enterprises (SPSEs)

The CAG report has revealed that the net worth of Delhi Transport Corporation (DTC) and Delhi Power Company Limited is negative. As on 31 March 2020, net worth of Delhi Power Company Limited and DTC was (-) Rs 37,124.89 crore.

Seven SPSEs incurred losses as per their latest finalised accounts at the end of March 2020. The losses incurred by these SPSEs increased to ₹5,294.16 crores in 2019-20 from ₹3,859.78 crore in 2017-18 and ₹4,386.79 crore in 2018-19. Of the total loss of ₹5,294.16 crore incurred by these seven loss-incurring SPSEs in 2019-20, ₹5,280.55 crores (99.74%) was contributed by DTC alone.

The losses incurred by DTC were primarily due to the non-revision of fares since November 2009, increased annual maintenance costs (AMC), and the pay revision of DTC employees. As a result, DTC has not been in a position to repay either the loans received from the Delhi Government or the interest on them.

“Since 2011-12, the Delhi government has been releasing grants-in-aid (GIA) to DTC as financial assistance. DTC had received a GIA amounting to ₹11,766 crores during the period 2011-2020. Prior to 2011, DTC had received interest-bearing loans of ₹11,676 crores from the Delhi government. As of March 2019, accumulated interest amounted to ₹26,070 crores. Thus, of the total accumulated losses of ₹38,753 crore (as of March 2019), 67%, i.e., ₹26,070 crore, was due to accumulated interest,” said the CAG report.

Conclusion

Instead of competing with each other to offer more and more freebies, political parties need to take a closer look at the financial situation in Delhi. There is an urgent need to implement corrective measures to improve the financial health of the Delhi government. More freebies could further harm Delhi’s financial health, which could have serious repercussions for development work across various sectors.

Earlier Sanghnomics columns can be read here.