Thiruvananthapuram: Finance minister Dr T M Thomas Isaac, in the run up to the 'Alteration Memorandum', evokes the image of an ancient voyager who after years of wandering the corners of the earth is about to return to his native place with cartloads of exotic presents. What he will unload, we have been made to believe, will be unique, even magical; gifts that will change the way we live.
To all restless souls who keep prodding him to know more, Isaac has only this to say: “Wait till I present my Budget on July 8.” However, the LDF manifesto and Isaac’s own generous hints have offered a broad picture about what can be expected from LDF’s first budget. Besides the usual talk on reducing deficits and mobilising revenue, Isaac will be introducing never-before attempted methods to push up capital expenditure and revenues. Here Deccan Chronicle offers a beginner’s guide to some of the unprecedented measures that will be announced in the ‘Alteration Memorandum’.
KERALA BANK
This was by far the biggest idea mooted by Pinarayi Vijayan during his presidential address at Kerala Patana Congress in January this year. In fact, this was a concept mooted during the last LDF tenure. But, considering the massive logistical issues related to the starting of a new Bank, Pinarayi Vijayan has tweaked the concept. He wants the three-tier cooperative banking structure in the state transformed into one giant single entity with resources that could rival any major national or private bank in the state.
Kerala has a three-tier system in the co-operative credit mechanism - the Kerala State Co-operative Bank at the top, 14 district co-operative banks in the middle and 2,500-odd primary co-operative credit societies at the base level. According to the State Level Bankers Committee (SLBC), the 14 district cooperative banks have a total deposit base of nearly Rs 41,000 crore and investment of Rs 14,300 crore. The total deposit base of the cooperative banks in the state is around Rs 1,50,000 crore. Non-resident Malayalis, flush with investable resources, will be convinced to put their money in this bank. The money collected in this bank will be used for the state’s investment.
DANGER: The big question is, can a government saddled with a debt of '1.54 lakh crore inspire enough confidence. Cooperative banking works because of local trust. Once an apex bank is formed, local considerations might cease to exist, defeating the very purpose of the idea. Even now there are complaints that cooperative banks in Kannur district force people to deposit in schemes sponsored by CPM.
INFRA FUND
The state’s huge revenue deficit has virtually robbed it of development expenditure. All the money it is allowed to borrow as per RBI norms, which is three percent of the GSDP, is not enough even to meet its day-to-day expenses.
To drastically step up capital expenditure, the LDF feels that the state has to mobilise at least '50,000 crore circumventing RBI norms, as off-budget borrowings. For this, the state will have to depend on non-conventional funding mechanisms. Discussions within the LDF has crystallised into the formation of a special purpose vehicle (SPV) called Kerala Infrastructure Investment Fund.
Half of the state’s motor vehicle tax revenue will be routed to the Fund annually as government guarantee. KIIF, which will be assured government revenue as guarantee, will attract funds from private sources for major infrastructure projects.
Legislation would be introduced to ensure the uninterrupted flow of this tax money to the SPV. Besides government guarantee, the state will do more to improve the credit-rating of the SPV.
KIIF will have in its director board some of the most respected names in the field of economics in the country. Isaac himself had stated that he would prefer former RBI governors like Bimal Jalan.
The UDF government, too, had proposed a Kerala Infrastructure Invest Fund Board and K M Mani had earmarked Rs 2000 crore for the Board. No government guarantees were given, and the idea was to find a consultant first who will take the idea forward. But no consultant was found.
DANGER: Dedicating a buoyant source of income like motor vehicles tax (MVA), which is nearly '4000 crore, will lead to a situation where its growth will not be of any benefit to the state. It will, after a time, turn out to be a committed expenditure like salaries or pensions or interest payments. And what if the current trend of falling MVA continues?
ISLAMIC BANKING
Islamic banking, another of Isaac’s pet ideas, could be yet another option to bring in the much-needed capital investment. The finance minister has already voiced his desire to tap the potential of Cheraman Financial Services (CFS) to promote projects of a welfare nature. Being a non-banking financial company operating on the principles of Shariat Law, CFS will not accept deposits. But Isaac’s plan is to get the NBFC to mobilize Rs 500- Rs 1000 crore through the share route. This money can be used to transform, say, a small Rs 20-crore company like Kerala State Drugs and Pharmaceuticals (KSDP) into a modernized pharmaceutical manufacturing behemoth.
While roping in an Islamic bank like CFS, Isaac is eyeing huge funds locked up in the Gulf. There is lots of money lying idle in the Gulf that would be channelled only into Shariat-compliant products.
DANGER: With countries in the Gulf running huge deficits, it is hard to imagine from where the funds are going to come. A rich sate like Saudi Arabia, for instance, had to tap into its Sovereign Wealth Fund during the last two years to plug its burgeoning deficit.
KEJRIWAL MODEL
If plummeting tax revenues is Isaac’s worry, a surge in tax growth is Delhi Chief Minister Kejriwal’s pride. One way to improve tax collection is to goad people to demand bills from traders. Isaac is particularly enthused by Kejiriwal’s scheme to popularise bills. Called ‘Bill Banvao Inam Pao’ (Demand a Bill, Grab a Prize), it is an app-based version of the LuckyVat scheme introduced by Isaac in 2006 inspired by a similar scheme in Mexico. Under Lucky Vat, consumers purchasing goods above Rs 1000 were given a scratch card that could fetch up to Rs one lakh. However, securing the prizes turned out to be a big hassle and the scheme did not fetch the kind of results Isaac wanted.
Under ‘Bill Banvao Inam Pao’, the consumer can upload the bill on the Tax Department’s website or they can take a snapshot of the bill and send on the designated number of the Department through WhatsApp. The computer itself will pick the winners. In Delhi, the maximum prize money Rs 50,000 and any purchase over Rs 100 is eligible for the prize.
Isaac might also call for a legislation to make it mandatory for traders with computer billing to upload their bills on the taxes department site in real-time, or just when the bill is served.
DANGER: Studies show that only 20 percent of Malayalis use smartphones that can be used to upload bills on the site of the Tax Department.
