The mathematics behind the AAP’s subsidies for electricity and water

One of the key planks buttressing the Aam Aadmi Party’s popularity in the run-up to the upcoming Delhi assembly elections has been the bouquet of subsidised utilities—namely power and water—that it extended to the residents of the national capital. A 2019 report by the Comptroller and Auditor General of India, as well as the state government’s budget allocations of the past five financial years, illustrate how the AAP managed its funds to make room for these subsidies.

The AAP government’s revenue from taxes and duties increased steadily in the period from 2015 to 2020. According to the CAG report, between the financial years 2014-15 and 2017-18, Delhi’s revenue scaled up by nearly 31 percent, from Rs 29,585 crore to Rs 38,667 crore. The government made a strategic decision to channel these earnings into revenue expenditure—functional expenses that include salaries for employees of government schools and hospitals and subsidies, among others. Delhi has received less and less aid from the centre during the AAP’s five years in power. In addition, between 2014-15 and 2017-18, grants-in-aid from the centre declined by 7 percent, from Rs 2,348 crore to Rs 2,184 crore.

Governments typically incur two types of spending: revenue expenditure and capital expenditure. While the revenue expenditure includes immediate and functional expenses, capital expenditure includes the creation of assets. Simply put, building schools and hospitals is a capital expenditure, and the money allocated to run these institutions is revenue expenditure. The government’s earnings are split along similar lines. Revenue is earned from the state goods and taxes, excise duties, taxes on the sale of vehicles, and stamp and registration duties. Capital receipts include recovery of loans and disinvestment, among others. Concomitantly, state governments also incur expenditure on repaying loans from the centre, or the interest on such loans.

Despite the decrease in grants from the centre, the AAP government’s fiscal strategy has propelled not just the power and water subsidies, but also helped the party afford large budgetary allocations towards the health and education segments. Two key factors inform its fiscal management: the near-consistent rise in its cumulative tax and non-tax revenue; the decision to use the loans it receives to create capital assets rather than spend it for revenue expenditure and repay its own principal debt.

The CAG report, released in early 2019, detailed the state of the Delhi government’s finances for the year ending 31 March 2018.The report noted that between the financial years 2013-14 and 2017-18, the Delhi government managed to run a revenue-surplus state economy. This means that the government’s revenue receipts were consistently higher than its revenue expenditure.

Delhi’s tax revenue registered an increase of a little over 34 percent between the financial years 2014-15 and 2017-18, from Rs 26,604 crore to Rs 35,717 crore. The state’s cumulative revenue receipts—from revenue, non-tax revenue, grants and public debt —jumped by over thirty percent in this time, to Rs 41,266 crore.

Simultaneously, the funds raised by the Delhi government have been directed towards capital expenditure and repayment of debt. As a result, the percentage of the revenue receipts that have been used to pay interest declined from 10.09 percent in 2014 to 7.42 percent in 2018. With the interest paid on public debt coming down, the government had greater leeway in mobilising existing funds towards developmental initiatives.

According to the latest budget, for the financial year 2019-20, the government allocated a total of Rs 1,720 crore towards subsidy for consumers through DISCOMS, or electrical-power distribution companies. This marked an increase of 11 percent over the earlier allocation of Rs 1,600 crore, in the financial year 2016-17.

Over the years, the AAP government’s budgetary management has allowed it to greatly increase its total expenditure. When the AAP came to power in February 2015, the budget for the financial year 2014-15 was pegged at Rs 30,940 crore. By the year 2019-20, this had nearly doubled to Rs 60,000 crore, according to the AAP government’s budgets. Underlying this expansion in total expenditure is a decision to increase capital expenditure. According to the budget of the financial year 2019-20, the government demarcated Rs 15,219 crore out its corpus of Rs 60,000 crore for capacity creation—building infrastructure. This is a 47.7 percent rise from the previous financial year, where the outlay for capacity creation was Rs 10,306 crore. It is also nearly double the capital expenditure of Rs 7,430 crore that was marked out in the financial year 2014-15.

The CAG report also highlighted schemes for which “less grants from Government of India were received during 2017-18 over the previous year.” These included the Sarva Shiksha Abhiyan, or SSA, a central scheme for improving primary education; the Delhi State Health Mission, the state’s health scheme; and the Management, Monitoring and Evaluation of Mid-Day Meal Scheme, which looks over the mid-day meal scheme. For the SSA, the centre gave Rs 15.15 crore in the financial year 2017-18, whereas it had given Rs 95.78 crore in the financial year 2016-17. The Delhi State Health Mission received Rs 141.49 crore from the centre in the financial year 2017-18, compared to Rs 258.32 crore in the financial year 2016-17. The MME of the mid-day meal scheme received Rs 60.67 crore in the financial year 2017-18 as opposed to Rs 83.04 crore in the financial year 2016-17.

After coming to power in February 2015, the Delhi government launched a scheme providing a 50-percent subsidy on electricity bills of up to 400 units. In 2019, it announced that consumers whose usage was under 200 units would not be required to pay any charge. According to a report in the Hindustan Times, of the 52.27 lakh power consumers in Delhi, 42 lakh consumers—80 percent—have availed of Delhi government’s power subsidy scheme. Satyender Jain, Delhi’s power minister, told the Hindustan Times that in winter months, the coverage under the scheme reached as high as 47 lakh consumers. Jain said that the budgetary bill for the scheme could reach up to Rs 2,250 crore a year.

The power subsidy has been one of AAP’s main platforms in its bid for re-election; one that has also seen political responses from the Bharatiya Janata Party. In October last year, the BJP suggested that it would not continue the subsidy if it was elected to power, but will create “such an environment that electricity will be cheaper.” Kejriwal responded to this by attacking BJP ministers for availing power subsidies provided by the government. The BJP’s Delhi chief, Manoj Tiwari, has since promised that the party will give “five times more relief” than the AAP to water and electricity consumers. Tiwari’s promise is, however, missing from the manifesto that the BJP released on 31 January this year. On 19 January, the AAP had released a guarantee card, reassuring Delhi voters that the water and power benefits will not disappear if the AAP is re-elected when the state votes on 8 February.