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Arvind Kejriwal inherits sound fiscal, liabilities limited

Dec 30 2013, 09:14 IST
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Arvind Kejriwal takes charge as Delhi Chief Minister at the secretariat in New Delhi. (PTI) Arvind Kejriwal takes charge as Delhi Chief Minister at the secretariat in New Delhi. (PTI)
SummaryMost of AAP’s promises hinge on greater expenditure and that is restricted by Delhi's fiscal rules.

Arvind Kejriwal can start his innings on a sound fiscal note as the Delhi state finances provide him with an immediate headroom of Rs 3,050 crore from FY14.

Few state governments of India have had the luck of beginning their innings on such positive note. For instance the Mamata Banerjee administration in West Bengal, started off with a deficit of Rs 22,000 crore instead.

But the headroom could remain difficult to use since unlike other states, Delhi government has limited freedom to run up costs for which it will need clearances from the Central government.

The space that Kejriwal will find includes a plan surplus of Rs 1,723 crore. As per the Gadgil-Mukherjee formula, Delhi was entitled to build a plan corpus of Rs 18,349 crore for FY14 but it satisfied itself with a lower plan budget. The plan size was kept lower as the outgoing Delhi government found itself short of schemes to work the funds.

In addition an assessment by the Central government of the borrowing capacity of Delhi too notes that it “has a substantial borrowing capacity which has not been leveraged so far”. The net budgetary borrowings projected for the annual plan for FY14 is in negative zone — in other words the state has repaid

Rs 1,327 crore instead of taking on fresh loans.

Plus a projected revenue surplus of Rs 9,712 crore for FY14 puts the AAP government in a sweet spot as it gets down to prepare the budget for FY15 that has to be presented by April 2014. In short there is easy money to underwrite their election promise of cutting down on power and water bills if it comes to offering subsidy from the state treasury.

But for the next year it will immediately worsen the debt profile of the state. This will mean bad news for state public sector entities like DSIDC and DTTDC accustomed to raise money at easy rates. The fund advantage has incidentally got built in despite the limited borrowing space for the state as former chief minister Sheila Dikshit ran a tight fiscal ship.

The new chief minister has another window to exploit. Delhi until now has been getting no share of the Central divisible pool of taxes from the successive Finance Commissions. Instead it has got a flat annual sum of just Rs 325 crore from the Centre as discretionary grants in-lieu of its share in

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