Delhi Election: How AAP's Poll Promises May Affect State Finances

The Bharatiya Janata Party, which criticises the AAP’s 'Delhi model of development', calling Kejriwal’s schemes revadis, has promised that it would not discontinue any of the running schemes. Congress, too, has joined the battle, promising higher cash income support for women than AAP on the lines of Karnataka. 

The freebie war is intensifying in Delhi. AAP, in many ways, is credited with launching the freebie model, which it calls the social welfare model, promising free electricity and water to residents in Delhi in its 2015 manifesto. After its return to power in Delhi in 2020, it made similar promises in Punjab which worked, with the party sweeping the state. 

National parties Congress and BJP, which criticised this model, witnessing the effectiveness of the same in winning elections, have wholeheartedly adopted it. Congress made similar promises of free water/electricity, free bus travel and honorarium for women in Himachal Pradesh, Karnataka and Telangana. 

BJP, which was on the backfoot in Madhya Pradesh and Maharashtra, turned around its fortunes and won big mandates riding on Laadli Behna/Laadki Bahin schemes on support of women. Hemant Soren, too, won a second consecutive term riding on Maiyya Samman Yojana. 

The opposition parties and many middle class, educated voters are critical of the freebie model, which they fear would adversely impact the state’s finances and become a burden for future generations. There are no free lunches in the world. Massive spending on these schemes could increase borrowings, lead to higher debt payments, cutting of expenditure on essential items, and even shrinking of capital outlays of states. 

AAP, however, boasts of running the state smoothly with good financials, better than many other states, as it has minimised leakages in expenditure, rampant due to corruption before it came to power. Let’s see how the AAP model has impacted the state’s finances and how its promises could impact its budget further. 

AAP has implemented, in its two full terms, primarily five schemes:

1. Free electricity for a monthly consumption of 200 units and 50% subsidy to people with a consumption of 201-400 units.

2. Free water to families consuming up to 20,000 litres per month.

3. Free bus travel for women. 

4. Formation of Mohalla Clinics, conceptualised as a mechanism to make quality primary health care services accessible in Delhi at people’s doorstep.

5. Upgradation of infrastructure of government schools and making it par with private schools. 

The receipts of the state government is expected to improve from Rs 29,812 crore in 2014-15 to Rs 64,521 crore in 2024-25 (budgeted). During the same period, expenditure of the government (revenue and capital combined) is slated to increase from Rs 29,593 crore in 2014-15 to Rs 71,086 crore in 2024-25. While receipts have grown by 116% during the past period, they have not kept pace with expenditures, which have grown by 140% during the same period.

When AAP came to power in 2015, Delhi had a healthy surplus position, revenue surplus of Rs 6,075 crore and fiscal surplus of Rs 219 crore. Over the years, due to expenditure on freebies/schemes, the revenue surplus is expected to half to Rs 3,231 crore in 2024-25. Also, the state which enjoyed a fiscal surplus is projected to have a fiscal deficit of Rs 6,595 crore in 2024-25, last year of Kejriwal’s second full term. 

As a percentage of GDP, revenue surplus has declined from 1.23% in 2014-15 to 0.40% in 2023-24 (revised estimates). Fiscal surplus of 0.04% of GDP in 2013-14 has converted to fiscal deficit of 0.70% of GDP in 2023-24. One of the charges of the opposition parties is that due to the financial burden of freebies, AAP has not spent adequately on infrastructure. Congress claims AAP has not been able to keep pace with capex carried out during Sheila Dixit's government. 

Capital expenditure incurred was Rs 7,431 crore in 2014-15, which has declined to Rs 5,919 crore in 2024-25 (budgeted). Capex as a percentage of GDP has declined from 1.5% in 2014-15 to 0.75% in 2024-25. Capex as a percentage of total expenditure has declined from 25% in 2014-15 to 7.8% in 2024-25. It has deteriorated in Kejriwal’s second term from 22.6% in 2019-20 to 7.8% in 2024-25. So, while revenue expenditure has increased by 160% during the last 10 years, allocation for capex has declined by around 20%. 

How is AAP funding the expenditure of schemes? With receipts not keeping pace with expenditure, the AAP government has resorted to additional borrowings to meet its freebie/welfare commitments. Borrowings of the Delhi government were to the tune of Rs 1,794 crore in 2014-15. This has ballooned to Rs 10,000 crore in 2023-24/2024-25 (budgeted). With an increase in debt, the debt servicing (interest plus principal repayments) has also been increasing over the years. The state is not generating enough income to repay debts, resorting to refinancing or taking on new debt. 

To be fair to AAP, both fiscal deficit as well as Debt to GDP ratio are among the lowest in the country. Its fiscal deficit of 0.70% is within the band of 3% allowed by the FRBM Act. The average for Indian states is 3.35%. Its Debt to GDP ratio is projected to be 3.94%, much lower than other states, the average for 2024-25 being 29.39% for 2024-25 (budgeted). 

One has to note that the Budget of Delhi does not include expenditure on certain key sectors. For example, Delhi Police is under the Union Ministry of Home Affairs. Rs 11,178 crore has been allocated towards establishment expenditure for Delhi Police in 2024-25 from the Union Budget. This also helps Delhi have a better fiscal deficit and Debt to GDP ratios despite deteriorating over the years. 

Data from PRS Research shows that AAP spends much more on education, health, energy, urban development and water/sanitation compared to other states, primarily on account of commitments arising from its schemes. The fact that it does not need to spend on key sectors like policing provides it with spare resources to be spent on welfare schemes. This factor strengthens its claim that it has performed well in health and education sectors and has helped it win big in both 2015 and 2020 elections. 

On education, while states on an average spent 14.7% in 2023-24, AAP spent/allocated 24.3% of its budgeted expenditure on the sector. On health, while states on an average spent 6.2% in 2023-24, AAP spent/ allocated 13.8% of its budgeted expenditure on the sector. On water supply, while states on an average spent 2.7% in 2023-24, AAP spent/allocated 4% of its budgeted expenditure on the sector. Only on roads and bridges it spends marginally lower. 

AAP has promised Rs 2,100 for women per month if it comes to power. It had allocated Rs 2,000 crore for the scheme in 2024-25 budget at the rate of Rs 1,000 per month. This outlay could double to more than Rs 4,000 crore.

It has also promised free medical facilities to senior citizens, covering all their costs of hospitalisation even in private hospitals. Around 12.5% of the voting population of Delhi is above 60 years of age.

The party has announced Rs 18,000 per month for pujaris and granthis. The exact number of people who will benefit from these schemes is not ascertainable at this stage. However, it would entail higher spending and increase the burden on the state's finances. 

To sum up, the freebies are taking a toll on the state's finances with increase in borrowings/fiscal deficit and reduction in revenue surplus since AAP took over in February 2015. However its fiscal deficit and debt to GDP ratios are better compared to other states in India. 

It has made a lot of promises for the 2025 polls and they could further strain the state’s finances, unless it is able to match the increased spending with new/innovative ideas for generating revenue, which have become lesser and lesser in the GST era. Else it will have to resort to additional borrowings and/or limit capital expenditure. 

Amitabh Tiwari is a political commentator, strategist, and consultant advising political parties and leaders. He was previously a corporate and investment banker.

Disclaimer: The views expressed here are those of the author, and do not necessarily represent the views of NDTV Profit or its editorial team.