Covid-19 pandemic: Delhi govt begins cutting costs, shelves expensive projects

In order to cover the massive deficit, the Delhi government administration has been ordered to cut expenditure and take measures to put the economy on the road to recovery.

The Delhi government has initiated cost-cutting measures by freezing the dearness allowance (DA) and dearness relief (DR) of its employees and keeping any proposal for spending not related to the Covid-19 outbreak in abeyance till June 30.

The state government’s decision to freeze DA and DR will affect around 220,000 employees and pensioners of Delhi government till July 2021. (ANI File Photo)

The move comes amid a substantial hit to revenues with a complete shutdown of industries and trade due to the nationwide lockdown to stave off the spread of Covid-19. The Aam Aadmi Party (AAP) government has been able to generate only Rs 400 crore in tax revenues in April -- a tenth of its projected collections.

In order to cover the massive deficit, the administration has been ordered to cut expenditure and take measures to put the economy on the road to recovery.

On Monday, the city-state’s finance department issued an order to every state department, corporations and others, asking for all projects to be placed under “abeyance”. It stated that no proposal be submitted to the finance department for approval till June 30, unless it is an “activity/work” that cannot be postponed.

In an interview with HT on Monday, deputy chief minister Manish Sisodia, who is also Delhi’s finance minister, said that even if the lockdown is totally lifted, no government project will take off for at least two to three months. “Particularly construction projects, because they are capital-intensive. Paying salary is our priority. Only after that will we decide which flagship schemes to spend on depending on the funds’ situation,” he said.

The state government’s decision to freeze DA and DR will affect around 220,000 employees and pensioners of Delhi government till July 2021. They will continue to receive DA and DR at the current rate of 17%.

Sisodia presented a Rs 65,000 crore budget in March, the biggest by fiscal size for any government in Delhi. Besides other components, the government had estimated Rs 44,100 crore in tax revenues, excluding a GST compensation of Rs 7,800 crore.

As per the Delhi Budget 2020-21 documents, of the estimated Rs 44,100 crore tax revenue, excise accounted for Rs 6,300 crore and Rs 30,000 crore was to come from GST and VAT. While the government expected to mop up Rs 5,300 crore in stamps and registration fee, another Rs 2,500 crore were expected to be earned in taxes on motor vehicles.

With all trade and industry shut, liquor shops closed and almost zero new registration of property or vehicles, the government’s revenue estimates have taken a debilitating hit. Officials said besides cutting expenditure, the government may have to now review several projects and take a call as per the rate of the economic recovery.

“The Delhi government is not even considering taking up any of its major projects, especially anything related to infrastructure. Construction works be it of schools or roads will take a pause. What we are thinking of starting with are soft projects such as notifying the electric vehicle policy or the tree transplantation policy,” said a senior official.

Now, with the Centre coming up with fresh guidelines to relax rules under Lockdown 3.0, which will continue till May 17, the Delhi government has launched a graded response to jump start the economy. On Tuesday, the government levied additional cess on liquor and fuel. While an additional 70% corona cess was levied on sale of all liquor in the city on late Monday evening, the government announced 30% hike in value-added tax (VAT) on petrol and diesel.

Officials said with the government struggling to pay salaries of its employees, these measures will bring in money to run the government machinery and pay for urgent measures required to fight coronavirus and start critical projects. As per the Budget document, excise makes for 14% of the total tax revenue.

“But these will give only limited gains to the government. In the case of liquor sale, firstly only around 150 shops of over 800 have been shortlisted to open. Secondly, almost 90% of these 150 shops are not even being able to operate for the full permissible time of 9am to 6.30pm because of crowding. They are forced to shut for not following social distancing. So, the revenue is very negligible as of now,” said a senior official in the excise department.

In another development on Tuesday, the Delhi government also opened sub-registrar offices for registration of property. “Registrations have opened in all sub-registrar office from today. Twenty-six applications were received today,” Sisodia announced in a tweet in Hindi on Tuesday. Stamps and registration fee make up for 12% of the estimated revenue for the current financial year.

With the government rationalising funding, some projects that could be delayed by at least a month despite the lockdown relaxation include an underpass connecting Benito Juarez Road with San Martin Road, and the flyovers at Shastri Park and Seelampur, a second official said.

“With the relaxation in in-situ construction activities, a few agencies like the public works department had sought funds for their ongoing infrastructure projects. Additional funds of this nature are not allowed at this time. They can continue with construction activities if they have funds in place, not just for the raw materials and machinery, but also for salaries. So, most construction activities are being put on hold till June at least,” the first official said.

The government his hoping that the relaxations announced by the Centre to grant limited economic and normal activity while observing guidelines to curb the spread of coronavirus will help states to jump start economy and plot broader measures in the long run to chart recovery.

“Our only hope is that more and more vehicles start plying on the city roads. The problem is now, even if the lockdown has been relaxed, people are going out only for essential works. So, the kilometres travelled per vehicle has also significantly come down and it is going to continue for some more time, which means the sale of fuel will also not be as high as it used to be before the lockdown was announced,” an official in the trade and taxes department said.

The official added that compared to the monthly average VAT collection of around Rs 216 crore on petrol and diesel, the government last month could collect only Rs 37 crore. With the increase in fuel prices, it expects the monthly collection to increase by Rs 140 crore.