Delhi’s fiscal deficit increases by nearly 900%; not a major worry, says expert

Even as the total outlay of the annual budget increased by 43.8% to ₹1 lakh crore in the Bharatiya Janata Party’s first budget after coming to power, the fiscal deficit of the Delhi government is expected to rise by 899.67% compared to last year, as per budget documents.

A fiscal deficit is the shortfall between the government’s total spending and earnings and a chief measure of the health of the state’s finances. A lower fiscal deficit is linked with better financial health.

As per the budget documents, Delhi’s fiscal deficit 2025-26 (BE) is expected to be ₹13,702 crore compared to ₹1,523 crore in the revised estimate (RE) of 2024-25, showing slight strain in the city’s financial health.

BE for a particular budget stands for ‘budget estimate’, which is later changed to RE in the next year’s budget. 

Delhi’s debt to GSDP (Gross State Domestic Product) ratio is the lowest in the country, according to RBI data. This ratio indicates better financial health, implying that Delhi could afford to have a slightly higher fiscal deficit.

Manish Gupta, Associate Professor at the National Institute of Public Finance and Policy, New Delhi, said, “Delhi’s debt to GSDP ratio is the lowest, so, we shouldn’t be scared of fiscal deficit. For the initial few years, you need to spend more and revenue will start coming in the future, triggering more growth and development.”

With the increase in total budget outlay, the percentage of capital expenditure has increased to 28% of the budget compared to 20% in last year’s budget.

Capital expenditure is done for creating assets such as roads, buildings etc., while revenue expenditure is for meeting expenses such as salary, direct cash transfer schemes, subsidies, etc. In Tuesday’s speech, Chief Minister Rekha Gupta underlined the importance of capital expenditure and infrastructure development.

When asked about it, Mr. Gupta said, “Focus on infrastructure is a good move. Creating infrastructure (capital expenditure) has a larger multiplier effect than revenue expenditure to put the economy on a growth path. The Central government’s focus has been over the years has been on augmenting infrastructure and the government also seems to be following it now. We need more buses, better infrastructure in schools, hospitals, and roads to improve the overall quality of life.”

Of the total revenue of ₹1 lakh crore, ₹68,700 is expected to come from taxes, ₹4,128 crore from Centrally Sponsored Schemes (CSS), and ₹7,968 crore from central assistance. With the tax revenue likely to increase by 16.9% compared to last year and CSS expected to soar by 28.03%, the central assistance is expected to increase by 582.1%, according to the budget document.