The Hindu Business Line : Tap internal resources than ADB loan: Study

KERALA should not accept further instalments of the $775-million loan sanctioned by the Asian Development Bank (ADB), says a research study by Mr K. Ravi Raman, Associate Fellow, Centre for Development Studies, Thiruvananthapuram.

Titled `The Asian Development Bank Loan for Kerala: The Adverse Implications and Search for Alternatives', the study was published recently by the Centre for Development Studies as part of its `working paper' series. The document recommends that the State should look at tapping internal resources in lieu of the ADB loan.

Continuing with the loan from the ADB will affect the State's fiscal health, the document says. If the Kerala Government accepts the entire loan, it will culminate in a social de-investment and `commodification' of critical sectors such as health and education, the study says.

This in turn will lead to a reversion of the Kerala model of development and will have a significant impact on the most vulnerable segments of Kerala society, it adds.

Instead of accepting the loan from the ADB, the study recommends tapping of internal resources including locked-up funds. For instance, the total revenue arrears due to the State from different departments amounts to Rs 3,071 crore, the study says. Realisation of even 20 per cent of this amount will be enough to replace the second tranche of the ADB loan (Rs 600 crore), it adds.

Similarly, there is an ever increasing revenue loss to the State Government from various sectors of the economy owing to under-assessment of tax, incorrect computation of agricultural income tax, exclusion of income from assessment including those of luxury hotels and bars, and non-realisation of potential value of forest produce and so on. The revenue loss on this count in 2001-02 was estimated to be Rs 500 crore — almost enough to match the second tranche of the ADB loan, the study says.

The study points out that other potential sources of revenue such as more efficient sales tax collection, especially for commodities such as gold, can be tapped.

The sales tax revenue obtained from the sale of gold is only Rs 32 crore, while it should have really been five or six times this amount, the study adds. The extent of evasion of sales tax in this segment becomes apparent from an analysis of returns filed by 79 gold merchants and dealers in Thiruvananthapuram district. The analysis of returns shows that 89 per cent of these merchants claimed sales amounting to a mere one sovereign per day, the study points out.

The plantation sector is yet another potential source of funds to replace the ADB loan. Proper implementation of revised lease agreements between the State Government and large plantations alone will bring in an additional Rs 500 crore for the Government, estimates the study. Similarly, with Kerala's economy being a service-led one, the State could look at bargaining with the Centre to allow it to levy taxes on more services, the document adds.

The study also points out that internal resources could be mobilised through market borrowings within the Reserve Bank of India guidelines, and through the mobilisation of loans from cooperatives and commercial banks.

The ADB loan package is intended to support the Kerala's Modernising Government Programme and fiscal reform, power sector reforms and an urban development, environment improvement and poverty reduction programme.