It will be difficult for the AAP govt to maintain subsidies and dole out more schemes in the longer run.
The Aam Aadmi Party (AAP) on Wednesday fulfilled its key promises of cutting power rates by half and providing 20 kilolitres of free water a month to every household in the national capital. A look at Delhi's finances suggests it will be difficult for the AAP government to maintain subsidies and dole out more in the longer run.
According to calculations by Business Standard, the cut in power rates will cost the state exchequer Rs 1,432-1,522.5 crore a year (excluding consumers who use over 400 units a month). This is about four per cent of the total Budget estimate for 2014-15.
Many say the subsidy will limit the government's fiscal space, given the fact the surplus of income over expenditure (savings) has declined significantly - from Rs 7,713 crore in 2011 to Rs 1,985 crore in 2013.
Chief Minister Arvind Kejriwal claims the government will be able to mop up higher revenue due to his anti-corruption measures.
The government says further subsidy will depend on the outcome of an ongoing audit by the Comptroller and Audit General (CAG). It is hoping after the audit, power distribution companies will not be able to justify the "high tariff" charged as of now.
On power purchase costs, the AAP manifesto said distribution companies in Delhi were purchasing power at high costs compared to other states and that these costs could be lowered significantly. The party argues it can save more through purchase of power at cheaper rates.
This seems logical, as power costs account for about 80 per cent of the rates paid by consumers. But there is a problem: Distribution companies such as BSES Yamuna Power Ltd (BYPL) buy a significant portion of power from public sector companies at a predetermined price, for which agreements have already been signed for a long period. It will be difficult to alter these pacts.
However, if the CAG feels the power rates charged now aren't high, the AAP will have to live with higher rates, adding to its subsidy burden.
The AAP's decision on water could cost the state an additional Rs 216-665 crore. The wide range reflects differing views on the costs to provide treated water in Delhi. Against a cost of Rs 15.43 a kilolitre claimed by the Delhi Jal Board (DJB), the AAP, as well as some experts, says costs can be cut to Rs 5-7 a kilolitre if the DJB functions efficiently. In its projections, the DJB factors in the interest, distribution and collection losses and incremental capital costs.
Rough estimates from the AAP and DJB suggest of the 3.6 million households here, about 1.9 million consume less than 20 kilolitres of water a month each. The subsidy will not be available to households consuming more.
If one were to go by the lower range of the AAP estimate, the annual subsidy burden on the state will be Rs 216 crore, while it would balloon to Rs 665 crore if one considers the DJB's calculation.
The fuzziness over the figures also arises out of the fact that about 800,000 connections in Delhi either function without meters or with faulty ones. To improve cost recovery, the government has promised to address the issue of water theft.
The two promises AAP is yet to meet - installing a million close circuit television cameras (CCTVs) and free Wi-Fi for half an hour - could be less of a burden. A CCTV camera costs about Rs 2,000 (Rs 200 crore for a million). Expert say an additional Rs 200 crore will be required for installation and other infrastructure. Though these are one-time costs, operational costs could add up to Rs 200 crore a year.
For Wi-Fi, business appears to be more enthusiastic than the government. "A lot of players will be ready to offer free internet services for half an hour a day in Delhi. These service providers can provide internet services on a pay-and-use model for the remainder of the day. This system is already in place in Connaught Place and Khan Market," said Rajesh Chharia, president of the Internet Service Providers Association of India.
Of all the commitments made by AAP, setting up 500 new schools and 20 new colleges will be the most challenging. The costs on this are unascertainable, as the business model isn't clear.
"Delhi has a complex school system, with about 950 schools (catering to 35 per cent of the students) directly under the Delhi government, 1,750 schools (catering to 24 per cent) under municipalities and 2,300 private schools (catering to about 40 per cent). The average cost per child a year in Delhi schools is Rs 27,200 and in municipal schools (all primary schools) Rs 18,245," says Ashish Dhawan of Central Square Foundation, a non-profit organisation.
Only greater clarity from AAP on the business model for adding 500 schools will provide an estimate of the costs involved. For the poor, shifting their children from private schools to a subsidised education system could cut costs substantially, though the quality of education is a separate issue.
WATER FEE
- Water supplied to 3.65 million households in Delhi
- About 81% (2.96 million) of these have piped water connections
- About 1.9 million households use less than 20 kilolitres of water a month
- In 2012, Delhi Jal Board (DJB) admitted nearly 400,000 connections were without meter and another 400,000 connections had defective meters
- According to DJB, a litre of treated water costs Rs 15.43 per kilolitre
- According to govt sources and experts, it costs Rs 5-7 per kilolitre
- According to AAP estimates, 20 kl of free water every month will lead to an annual subsidy of Rs 216 crore
- Going by DJB’s figures, the annual subsidy burden will be Rs 665 crore
