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.

central taxes. The sum is unchanged for the past 12 years and this is something that Kejriwal’s team will certainly want to revisit.

Kejriwal’ problems will lie elsewhere; in the management of expenditure. The Delhi fiscal rules allows for little financial engineering to take on additional expenditure. For example if he wants to transfer the back log of liabilities of the discoms by transferring them to say, the state owned Delhi Transco that will not be possible as the state laws do not allow it to stand guarantee for a loan raised by any of its public sector undertakings or local bodies working under its domain.

This also precludes the ability of the Delhi Jal Board to take on heavy loans to finance new investment to ramp up water supply capacity. The alternative of floating a special purpose vehicle is also limited as the state budget has no provisions to provide any support to such bodies.

Even worse affected will be its plans for adding to the employee strength. Because of Delhi’s surplus balance sheet, it gets no Central assistance to finance the non-plan gap in its resources. For plan schemes for instance the state government generates the funds in lieu of Central assistance.

AAP’s plans to convert contract employees to regular ones will be deadly in this context. The total number of Delhi government employees as per its own statistics is 85,267 as on March 2011. The budget for a 70 per cent addition to the rolls will balloon the salary bill from the current Rs 5,365 crore by over Rs 2,100 crore.

As of now, the Delhi government spends more than 70 per cent of its plan funds for capital outlay. Its annual addition to state salary bill at less than 13 per cent year on year is one of the lowest among all states. This will shoot up by over 50 per cent if this project goes through in FY15.

Since the Delhi govern does not have any powers to borrow from the open market and can only borrow from the central government, the consequent effect on the aggregate fiscal deficit will be close to 0.5 per cent.

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