One of the key planks buttressing the Aam Aadmi Party’s popularity in the run-up to the upcoming Delhi assembly elections has been the bouquet of subsidised utilities—namely power and water—that it extended to the residents of the national capital. A 2019 report by the Comptroller and Auditor General of India, as well as the state government’s budget allocations of the past five financial years, illustrate how the AAP managed its funds to make room for these subsidies.

The AAP government’s revenue from taxes and duties increased steadily in the period from 2015 to 2020. According to the CAG report, between the financial years 2014-15 and 2017-18, Delhi’s revenue scaled up by nearly 31 percent, from Rs 29,585 crore to Rs 38,667 crore. The government made a strategic decision to channel these earnings into revenue expenditure—functional expenses that include salaries for employees of government schools and hospitals and subsidies, among others. Delhi has received less and less aid from the centre during the AAP’s five years in power. In addition, between 2014-15 and 2017-18, grants-in-aid from the centre declined by 7 percent, from Rs 2,348 crore to Rs 2,184 crore.

Governments typically incur two types of spending: revenue expenditure and capital expenditure. While the revenue expenditure includes immediate and functional expenses, capital expenditure includes the creation of assets. Simply put, building schools and hospitals is a capital expenditure, and the money allocated to run these institutions is revenue expenditure. The government’s earnings are split along similar lines. Revenue is earned from the state goods and taxes, excise duties, taxes on the sale of vehicles, and stamp and registration duties. Capital receipts include recovery of loans and disinvestment, among others. Concomitantly, state governments also incur expenditure on repaying loans from the centre, or the interest on such loans.

Despite the decrease in grants from the centre, the AAP government’s fiscal strategy has propelled not just the power and water subsidies, but also helped the party afford large budgetary allocations towards the health and education segments. Two key factors inform its fiscal management: the near-consistent rise in its cumulative tax and non-tax revenue; the decision to use the loans it receives to create capital assets rather than spend it for revenue expenditure and repay its own principal debt.