Remittances remain off tax radar

Thiruvananthapuram: There are striking similarities between the wealth stashed in the underground vaults of Sree Padmanabha Swamy temple and NRI wealth parked in the state’s banks.

Both are more than a jaw-dropping Rs one lakh crore. And both, from the point of view of the state’s economy, look like dead assets. Leaving the hoard in the cellars of a major temple untouched is understandable but not to exploit the massive NRI wealth for the state’s benefit seems intriguing.

“It is not as if a part of the money is not pumped into the economy but it is just that it is not reflected in the tax revenue of the state,” a top Finance Department official said.

The part of remittances that is being pumped into the market has somehow managed to hoodwink the state’s tax radars.

Experts say most of this money goes into construction and gold. Dr Irudaya Rajan, the state’s foremost demographic expert, chalks up the ongoing boom in the construction and real estate sectors to NRI money.

“But the investment made in this sector is masked. No one, for instance, ever reveals the actual amount paid to purchase a piece of land. In the case of gold, too, bulk purchases are made without bills,” he said.

The state, as a result, is deprived of a share of NRI prosperity. The lion's share of NRI money, however, remains in banks. But it is not easy to draw this money out for the state's development. Firstly, there are functional conditions imposed on banks by the RBI.

“The banks have statutory obligations like cash reserve ratio, investment in securities and statutory liquidity ratio for which it keeps apart some of the deposits,” Mr Janardhanan, a former banker said.

More than 30 percent of the NRI deposits are locked up in banks to meet its functional obligations.

More importantly, banks in spite of Kochi Metro and Vizhinjam port are still not convinced of the state’s investment potential. “Banks get better returns if they employ the cache in development-oriented states like Tamil Nadu or Gujarat or Andhra Pradesh,” Dr Irudaya Rajan said.