IN A STATE OF BOTHER

States are facing a funds crunch. As GST revenues moderate and fiscal deficits balloon, they must look for new sources of revenue to fund welfare schemes and infrastructure needs

- DIPAK MONDAL

In the recent Delhi elections, in which the incumbent Aam Aadmi Party (AAP) scored a resounding victory, the issue of politicians doling out freebies (a charge levelled at AAP for providing subsidised power and water, among other things) to win votes was the talk of the town. Fiscal fundamentalists — those who want governments to keep a tight leash on ‘unproductive’ spending — have always fretted over subsidies and free basic amenities saying these put unnecessary pressure on finances of governments, which in turn may try to exact more from honest taxpayers.

The case of Delhi is different. Despite the freebies, its finances are in the pink of health. The state generates, on its own, over 85 per cent of its total annual revenue (₹51,000 crore in 2019/20), and so depends less than others on central grants. Its fiscal deficit was 0.08 per cent of gross state domestic product (GSDP) in 2018/19, likely to be 0.7 per cent in 2019/20. However, Delhi is a city state, and a lot of its administration costs are borne by the Centre. For example, the Delhi police comes under the Union home ministry. The Union Budget has allocated ₹8,020 crore for Delhi police for 2020/21 as against ₹7,893 crore for 2019/20. To put this number in perspective, for 2019/20, Delhi has budgeted for total expenditure of ₹60,000 crore and fiscal deficit of ₹5,902 crore.