The Aam Aadmi Party’s welfarist policies appear to have been richly rewarded in the recently concluded Delhi assembly elections. Subsidised power and water, coupled with increased state spending on public goods such as health and education, proved to be crucial elements in a winning package. But there are challenges and costs in persisting with this model of governance even in a rich state like Delhi. As the AAP gears for another term in office, it needs to be mindful of the arduous road ahead. It will need to prioritise its spending and rationalise its ongoing welfare schemes.
The last five years have seen a spectacular rise in Delhi government’s spending on the social sector. Spending on education rose from 21.2 per cent of expenditure in 2014-15 to 25.3 per cent in 2019-20 — outstripping that by other states (14.8 per cent in 2019-20). Similarly, the state’s spending on medical, public health and family welfare stood at 12.5 per cent in 2019-20, higher than the national average of 4.9 per cent. While the determined focus on improving public services such as education and healthcare is welcome, the same cannot be said about the near universal nature of subsidies on water and electricity. Over the years, the state’s revenue balance — the gap between its revenue receipts and expenditure — has fallen. And in recent years, its fiscal deficit, while manageable, has also risen. This welfarist policy orientation of the government has come at the cost of capital spending. The state’s capital outlay, its spending on physical infrastructure, has remained almost stagnant for much of the last five years — in fact, it has fallen from 1.16 per cent as a percentage of its gross domestic product in 2011-12 to 0.54 per cent in 2018-19.
To be sure, the state has the fiscal space to ramp up capital spending. It has a much lower debt to GDP ratio than the national average. Further, its committed expenditures such as those on interest payments, salaries and wages are also much lower than the national average, providing it the space to rework its expenditure priorities. This could be used to beef up spending on areas such as public transport and infrastructure — which are increasingly under pressure. As the new government begins to finalise its five-year strategy, it must avoid the temptation to indiscriminately expand its welfare programmes. Rather, it should aim to run a more targeted welfare delivery programme by rationalising the power and water subsidies.
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