• The Delhi government is in a sweet spot due to GST revenues that are a result of high population density and consumption. It can fritter away such revenue in subsidies or create assets that outlive it.

A Mint editorial says, “The Election Commission (EC) had added its voice to India’s debate on freebies. The conductor of polls reportedly wants political parties to tell voters before elections what their handout proposals would cost and how they would be funded”. 

However, what is a freebie is very difficult to define.

Instead the editorial says, “What voters deserve, though, is a clear picture of state finances”.

This article does precisely that.

It analyses Delhi government (DG) budget numbers. Why Delhi?

Because the Aam Aadmi Party that runs DG seeks to replicate the freebies offered to Delhi voters, like free power and water, to other states. Read on.

The fiscal deficit is projected at Rs 9,194 crs in Fy23, Rs 14,562 crs in 21-22RE and actuals of Rs 6,708 crs in 2020-21. The corresponding percentage of GDP being .1, 1.58 and .85. These are well within the limit of 4% laid down for states.

The Revenue Balance (excess of revenue receipts over revenue expenditure) is projected at Rs 7,601 crs in Fy23, Rs -3039 crs in 2021-22 RE (budgeted surplus was Rs 1,271 crs) and actuals of Rs 1,450 crs in 2020-21 and 5,264 crs in 2016-17. The revenue balance is falling, projection has value only when realised.  

The State Own Tax Revenue is projected at Rs 47,700 crs in Fy23 and Rs 38,350 crs in 21-22 RE i.e. an increase of 24.4%. The actuals in 2020-21 were Rs 29,425 crs and Rs 31,140 crs in 2016-17.

Nearly half way through Fy23 the projections lead to some observations.

State excise revenue projected at Rs 9,500 crs against Rs 5,000 crs in 21-22 RE and actuals of Rs 4,108 crs in 2020-21. In view of the withdrawal of the new excise policy on liquor and past performance the Fy23 number might not be realised.

Sales tax/VAT projected revenue of Rs 5,200 crs in Fy23 against Rs 5,000 crs in RE and actuals of Rs 4,411 crs in 2020-21.

Rs 10,000 crs is taken as GST Compensation in Fy23. In view of its withdrawal it will accrue for only three months. Thus, actuals would be lower.

Conversely, State GST collections will exceed Fy23 projection of Rs 26,000 crs. Actuals (excluding GST on import of goods) for the period April to September 2022 were Rs 27,714 crs. Here are some reasons for high GST revenue. 

High per capital income. According to Finance Minister’s Fy23 Budget speech Delhi’s per capita income at current prices in 2021-22 is likely to be Rs 401,982/. Also, Delhi has a population density of 11,320 (national average 382) according to the 2011 Census plus it attracts buyers from other states. These factors contribute to local sales. Since GST is a destination based tax revenue increases. Further, the benefits of an integrated uniform tax system and economic recovery are getting reflected now.

Should any state be over-dependent on consumer spending and one source of revenue?

With high GST revenues does Delhi need grants from Centre? (Fy23 Rs 12,589 crs)

Revenue from Stamp Duty and Registrations hovers between Rs 4,500-Rs 5,000 crs. With the real estate sector picking up, the actuals may be higher than Fy23 projection of Rs 4,997 crs.

Coming to expenditure, the State Revenue Expenditure is projected at Rs 53,687 crs in Fy23 and Rs 50,862 crs in 21-22 RE i.e. an increase of 5.5%. The actuals in 2020-21 were Rs 40,114 crs and in 2016-17 were Rs 29,082 crs.

The Fy23 and Fy22 budgets each allocated Rs 600 crs for subsidy to consumers for free water (Fy21 Rs 467 crs) and Rs 3,250 crs and Rs 3,090 crs to Discoms (Fy21 Rs 2,820 crs) being energy subsidy for consumers. Note that water subsidy was Rs 2 crs in 2014-15. Source

Should a scare commodity like water be given free, more so when Delhi depends on other states for majority of its supply?

From the above it appears that subsidies were accounted for in the budget. However, the amount of unfunded subsidy in the books of Delhi Jaal Board, Discoms and Delhi Transport Corporation is rarely spoken about! Can the Delhi government fund such subsidies, for an informed assessment, in its next budget just like the Centre did for Food Corporation of India?    

Some are calling this the Delhi Model and believe this can be replicated in other states. Unlikely, because the gains from GST that Delhi makes due to its location cannot be replicated. Further, it is not a full-fledged state like say Punjab or Gujarat, so does not have to incur costs that other states do for e.g. police.

To put matters in perspective. In September  2022 out of a total GST revenue of Rs 1,05, 615 crs (excluding GST on import of goods) Delhi share was Rs 4,741 crs, (P/Y Rs 3,605 crs) whilst bigger states share was Andhra Pradesh Rs 3,132 crs Rajasthan Rs 3,307 crs, Punjab Rs 1,710 crs and Madhya Pradesh Rs 2,711 crs. (Press Release).

What is of concern is that Fy23 budget provides Rs 1,298 crs for development of unauthorised colonies. The figure was Rs 1,550 crs in Fy22 and Rs 1,700 crs in Fy21. When governments fund development of unauthorised colonies it puts a question mark on the need for authorised ones.

High consumption and GST revenues have put the Delhi government in a sweet spot. The government can create assets that will outlive it or fritter away resources in freebies with medium to long-term consequences.

All data courtesy PRS Legislative Research reports. Errors if any are regretted in advance.

               Table 1 – Delhi Budget Snapshot                                   Rs crores

Notes

1. BE Rs 3,485 crs allocated to government primary schools.

2. BE Rs 1,100 crs allocated towards hospitals and dispensaries.

3. BE Rs 1,578 crs for sewage facility in unauthorised colonies.

11. “During 2018-22, Delhi has relied on GST compensation grants to achieve the guaranteed SGST revenue level.”

Net Revenue Receipts including grants from Centre.  

The author is a Chartered Accountant.