Explained: Issues in Delhi govt’s request for Rs 10,000 cr loan from National Small Savings Fund

In this context, the state’s Finance Department internally objected to the demand to borrow from the NSSF. There is also the issue of future governments having to deal with loan repayments worth thousands of crores. We explain.

What is the NSSF and what is the Delhi government’s loan proposal?

The Delhi government has written to the Union Ministry of Finance to borrow Rs 10,000 crore from the NSSF. Chief Minister Atishi signed the proposal despite objections by the state’s Finance Department, which said that Delhi should quit the NSSF.

Besides Delhi, only three other states — Arunachal Pradesh, Kerala and Madhya Pradesh — borrow from NSSF, which comprises collections under small saving schemes net of withdrawals by subscribers. Most states have decided to stay out of it since these loans are more expensive than market borrowings.

NSSF also invests in the state and central government securities as per Government of India norms.

What is the issue with the Delhi government’s extra borrowing?

The Delhi government earlier ran into trouble with the Union Ministry of Finance when it started prepaying its older NSSF loans. The ministry strongly objected to this, as prepayment of loans by any state can impact other government entities accessing high-cost borrowings from NSSF. 

As a result, Delhi did not get to borrow from NSSF in 2023-24, while in 2022-23 it borrowed Rs 3,721 crore — much lower than Rs 10,000 crore-plus borrowing in each of the previous three years.

In July this year, the Finance Ministry conveyed to the Delhi government that availing loans from the NSSF would be a one-time option and not done annually. It sought confirmation from the Delhi government on whether it plans to continue with the NSSF loan as per the initial terms and conditions and follow the repayment schedule.

It then spelt out two scenarios of repayment. Under Scenario I, the Delhi government had the option to quit the NSSF scheme, with no liability on account of the NSSF loan after March 2039. The outstanding amount would then be Rs 31,697.47 crore (the same as on April 1, 2024).

Under Scenario II, if the Delhi government continues with the NSSF loan, Rs 10,000 crore is estimated to be disbursed to Delhi every year from 2024-25 to 2038-39. This would result in an interest burden of Rs 57,661.68 crore on the NSSF loan borrowed till March 31, 2039.

The difference in the interest amount between Scenario I and Scenario II is Rs 45,980 crore. Also, the principal amount of Rs 1,26,697.47 crore would be payable under Scenario II from 2024-25 to 2038-39, as against only Rs 31,697.47 crore in the same period under Scenario I with no further liabilities.

What was the objection from Delhi’s Finance Department?

In a September 2 note, Delhi’s Principal Secretary (Finance) Ashish Chandra Verma is learnt to have objected to taking loans from the NSSF this fiscal, given the expected reduction in expenditure due to the MCC coming into effect.

“In view of the hugely expanded interest liability, and the likelihood of reduced expenditure due to MCC, it is recommended to accept Scenario I (the option to quit from the NSSF scheme),” Verma had noted. He further said, “We are already six months into the current financial year and it can be estimated that 2-2.5 months will be taken up by the MCC for Delhi Legislative Assembly elections. This gives only 4-4.5 months for scheme expenditure on account of capital works.”

The more problematic part for Verma was the requirement that the NSSF loan would be agreed to not only for the current financial year but the future, too, potentially posing challenges for later state governments. Agreeing to it would “impose a huge interest burden” and “will have to be carefully assessed,” he noted.

Despite these concerns, CM Atishi, who also holds the finance portfolio, gave the go-ahead to take loans from the NSSF scheme on existing terms and conditions. “The Finance Department to immediately communicate to the Ministry of Finance, Govt. of India, to ensure release from NSSF Loan Scheme for the current financial year,” she said in an October 10 note.

What are the expenditure estimates for FY25 for Delhi?

Up to July this year, the Delhi government had spent 24.63 per cent of the FY25 budget expenditure estimate, that is Rs 18,719.95 crore of Rs 76,000 crore. As per the government’s internal calculations, its expenditure is expected to rise to Rs 68,300 crore during the current financial year 2024-25, marking a record high.

Calculations show that if one were to go by the expenditure trends over the last five financial years, from 2019-20 to 2023-24, the Delhi government spent around 85 per cent on average as compared to the budget estimates. The highest expenditure amount was seen in 2023-24 at Rs 65,824.14 crore.

At this rate of utilisation of the allocated amount for expenditure, Delhi’s expenditure is expected to rise to Rs 68,300 crore in the current financial year. However, its finances may come under pressure as the government has decided to continue with more schemes to distribute what its political opponents have called “revdi” or freebies. It has other pending payment obligations too, including towards the Delhi Metro Rail Corporation.

In the last week, the Aam Aadmi Party has conveyed its intent to continue free services. On Friday, while launching a 15-day campaign called “Revdi pe Charcha” (discussions on freebies), the party’s national convenor Arvind Kejriwal listed the Delhi government’s six revdis — free electricity, water, education, healthcare, bus tickets for women and pilgrimage for elderly.

He said, “Apart from these six revdis, the seventh one is coming soon,” promising to begin depositing Rs 1,000 per month in every Delhi woman’s bank account.

When contacted by The Indian Express about the impact of this extra borrowing, a Delhi government spokesperson said, “How much debt does the government take in any particular year is a routine administrative decision keeping several factors in mind.”

Further, the spokesperson said that the Economic Survey of Delhi 2023-24 shows that the total debt of the Delhi government as a percentage of GDP has reduced from 6.4 per cent in 2013-14 to 3.9 per cent in 2023. “This just isn’t the lowest in Delhi’s history but it is also the lowest in India,” the spokesperson said.