Delhi govt seeks Rs 10,000 cr loan from Centre ahead of Assembly elections

This request comes despite pushback from Delhi's own finance department, which had anticipated lower spending due to the Model Code of Conduct

As Delhi gears up for its upcoming Assembly elections, the state government has taken a significant financial step, seeking to borrow Rs 10,000 crore from the National Small Savings Fund (NSSF) for the financial year 2024-25, according to a report by The Indian Express. 

 

This decision comes despite pushback from Delhi’s own finance department, which had expected lower spending in anticipation of the Model Code of Conduct (MCC), that takes effect with poll announcements.

 

Delhi fund request to Centre

 

Chief Minister Atishi, who also oversees the finance portfolio, approved the borrowing plan and instructed the finance department to formally request the funds from the Ministry of Finance.

 

 

This move contrasts with a recommendation from Principal Secretary (Finance) Ashish Chandra Verma, who had advised against taking the NSSF loan, suggesting that Delhi should withdraw from the scheme altogether. Verma highlighted the long-term financial strain, noting that opting for the NSSF would burden the government with an additional interest of Rs 45,980 crore by 2039, on top of the Rs 1.27 trillion principal repayment.

 

The NSSF, a fund sourced from small savings schemes and net of withdrawals, has been tapped by only four states: Delhi, Arunachal Pradesh, Kerala, and Madhya Pradesh. Most states prefer not to borrow from the NSSF due to its higher cost compared to market borrowings.

 

Delhi had borrowed Rs 3,721 crore from the NSSF in 2022-23 but did not take loans in the previous financial year.

 

What is the National Small Saving Fund?

 

The National Small Savings Fund, or NSSF, was established in 1999 within the Public Account of India and is managed by the Government of India through the Ministry of Finance's Department of Economic Affairs. It operates under the National Small Savings Fund (Custody and Investment) Rules, 2001, enacted by the President under Article 283(1) of the Constitution. The main objective of the NSSF is to de-link small savings transactions from the Consolidated Fund of India, ensuring that these transactions are conducted in a transparent and self-sustaining manner.

 

The NSSF functions independently in the public account, so its transactions do not directly affect the Centre's fiscal deficit. Small savings instruments within the fund can be classified into three categories: postal deposits, which include savings accounts, recurring deposits, time deposits of different maturities, and monthly income schemes; savings certificates such as the National Small Savings Certificate (NSC) and Kisan Vikas Patra (KVP); and social security schemes like the Public Provident Fund (PPF) and Senior Citizens' Savings Scheme (SCSS).

 

Why is Delhi requesting funds from the Centre?

 

Atishi’s decision comes as the Aam Aadmi Party (AAP) amplifies its election campaign, emphasising popular welfare schemes known as “revdis” or freebies.

 

During a recent campaign titled “revdi pe charcha,” National Convener Arvind Kejriwal outlined the Delhi government’s six major initiatives—free electricity, water, education, healthcare, subsidised bus travel for women, and elder pilgrimage. He added that a seventh scheme, promising Rs 1,000 per month for every Delhi woman, is set to launch soon.

 

According to the news report, a Delhi government spokesperson defended the loan decision, stating that borrowing levels are part of routine financial planning, factoring in economic conditions and administrative needs.

 

The spokesperson further cited the Economic Survey of Delhi 2023-24, which revealed that Delhi’s debt as a percentage of gross domestic product (GDP) has dropped to 3.9 per cent, marking the lowest in the city’s history and among the lowest in India.

 

Despite these reassurances, Verma’s note indicated the limited timeline available for capital expenditure, noting that the MCC would take 2-2.5 months, leaving only 4-4.5 months for implementing projects.

 

The ministry's July communication outlined two options: continuing with the loan, which would entail significant future interest, or exiting the scheme, which would eliminate future liabilities but leave an outstanding Rs 31,697.47 crore.

 

Under the continuation scenario, repayments through 2038-39 would total Rs 1.26 trillion, with an added interest burden of Rs 57,661.68 crore.